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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Definitions:

Barriers to Entry

These are obstacles that prevent new competitors from easily entering an industry or area of business.

Oligopoly

A market structure characterized by a small number of firms that have significant control over market prices and competition.

Interdependence

The mutual reliance among businesses, individuals, industries, or economies, where the actions of one participant affect the outcomes of another.

Rivals

Competitors within the same industry or market that vie for the same customer base.