If People Base Their Spending Decisions More on Permanent Income

question 90

Multiple Choice

If people base their spending decisions 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.

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Definitions:

Mailbox Rule

A rule providing that an acceptance of an offer takes effect at the time it is communicated via the mode expressly or impliedly authorized by the offeror, rather than at the time it is actually received by the offeror. If acceptance is to be by mail, for example, it becomes effective the moment it is placed in the mailbox.

Offer

A proposal presented by one party to another as a basis for negotiations in a potential contract.

Accepted

Regarded as satisfactory or agreed upon; an acknowledgement of an offer or situation.

Promissory Estoppel

A legal principle preventing a party from withdrawing a promise made to another party if the latter has relied on that promise to their detriment.