According to the permanent income hypothesis, taxpayers react to a one-time tax rebate
A) by spending all of the tax rebate.
B) by spending more than the amount of the tax rebate.
C) by saving half of the tax rebate and spending the rest.
D) by saving all of the tax rebate.

Question

Quizplus · Accepted Answer

According to the permanent income hypothesis, individuals base their consumption on expected long-term average income rather than current income. Therefore, a one-time tax rebate is likely to be saved rather than spent, as it does not affect their perception of permanent income.

According to the Permanent Income Hypothesis, Taxpayers React to a One-Time