If people base their spending decision more on permanent income than current income,then
A)consumption spending will be more responsive to a temporary change in income than a change in permanent income
B)shifts in aggregate supply will be less predictable than if spending was based on current income
C)consumption spending will fluctuate more widely than if such spending was determined by current income
D)shifts in short-run aggregate supply will be more predictable than if spending was based on current income
E)attempts to fine-tune the economy with temporary tax rate adjustments will be less effective

Question

Quizplus · Accepted Answer

When people base their spending on permanent income, they are less likely to change their consumption patterns in response to temporary changes in income, such as temporary tax rate adjustments, making such policy measures less effective.

If People Base Their Spending Decision More on Permanent Income