Why Do Permanent Tax Cuts Have a Greater Impact on Consumption

question 70

Multiple Choice

Why do permanent tax cuts have a greater impact on consumption than temporary tax cuts?

• A)Permanent tax cuts have a greater effect on expected long-run inflation.
• B)Permanent tax cuts are perceived as minor while temporary tax cuts are larger and more effective.
• C)Permanent tax cuts cause movement along the consumption function, while temporary tax cuts shift the consumption function.
• D)Permanent tax cuts affect expectations of long-run income more than temporary tax cuts.

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