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 increase significantly.
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, but not significantly.
D)Housing expenditures will decrease by a small amount.

Question

Quizplus · Accepted Answer

Based on the estimated income elasticity of housing expenditures for owners in the HASE sites, an increase in income transfers to recipients would lead to an increase in housing expenditures. However, the elasticity of 0.45 suggests that the increase in housing expenditures would not be significant. Therefore, Option C is the best choice. Option B is incorrect because the question does not suggest that recipients would move to higher-income areas. Option A is incorrect because the elasticity suggests that the increase in housing expenditures would not be significant. Option D is incorrect because the elasticity suggests that there would be an increase, not a decrease, in housing expenditures.

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