Which of the following purchases is most likely to rise as the result of a temporary tax cut,according to the permanent-income hypothesis?
A)television sets and other consumer durables
B)steak dinners and other consumer non-durables
C)trips to the Virgin Islands and other vacation destinations
D)theater tickets and other entertainment expenditures

Question

Quizplus · Accepted Answer

According to the permanent-income hypothesis, a temporary tax cut is not expected to significantly affect household consumption patterns as consumers are likely to save the extra income rather than spend it. However, if consumers do decide to spend the extra income, they are more likely to invest in durable goods like television sets which have a longer lifespan and provide value in the long run.

Which of the Following Purchases Is Most Likely to Rise