Using cross-sectional data from the two Housing Assistance Supply Experiment (HASE)sites-Brown County, Wisconsin, and St.Joseph County, Indiana-John Mulford of Rand Research estimates the long-run "permanent" income elasticity of housing expenditures to be 0.45 for owners.Using this information, what is likely to happen to housing expenditures if the government increases income transfers to recipients in HASE sites?
A)Housing expenditures will not change.
B)Housing expenditures in HASE sites will fall significantly as recipients move out of these areas to higher-income areas.
C)Housing expenditures will increase.
D)Housing expenditures will decrease by a small amount.

Question

Quizplus · Accepted Answer

According to the given information, the long-run "permanent" income elasticity of housing expenditures for owners is 0.45, which means that a 1% increase in permanent income of households will lead to a 0.45% increase in their housing expenditures. Therefore, if the government increases income transfers to recipients in HASE sites, it will increase their permanent income, which will ultimately lead to an increase in their housing expenditures as well. Hence, the correct choice is C.

Using Cross-Sectional Data from the Two Housing Assistance Supply Experiment