With a temporary income tax surcharge,according to the ________,household consumption should ________.
A)LCH;stay the same
B)PIH;stay the same
C)LCH;fall since earnings over the lifecycle will decrease
D)PIH;fall since disposable income will fall

Question

Quizplus · Accepted Answer

The Permanent Income Hypothesis (PIH) suggests that household consumption is determined by their long-term income expectations rather than changes in their current income. Therefore, a temporary income tax surcharge would not change household consumption according to the PIH, as it does not alter the household's long-term income expectations.

With a Temporary Income Tax Surcharge,according to the ________,Household Consumption