According to the permanent income hypothesis,the tax rebate given in 2008 will have the following effect on consumer spending:

Question

Quizplus · Accepted Answer

The permanent income hypothesis suggests that people base their spending on the average of their lifetime income instead of their current income. Therefore, a tax rebate will not cause consumers to increase their spending in the short term as their permanent income has not changed. Instead, consumers may choose to save the rebate to increase their standard of living in the long term. This is consistent with choice C, where consumers spend a small amount and save most to achieve a higher standard of living.

According to the Permanent Income Hypothesis,the Tax Rebate Given in 2008