If People Base Their Spending Decision More on Permanent Income

question 106

Multiple Choice

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

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Definitions:

Retained Earnings

Retained earnings are the portion of a company's profits that is kept or retained and not paid out as dividends to shareholders but reinvested in its core business or to pay debt.

Shareholders'

Individuals or entities that own one or more shares of stock in a public or private corporation, granting them certain rights such as voting on corporate matters.

Reinvested Profit

Earnings that a company plows back into itself to fund growth, debt repayment, or asset purchases rather than distributing to shareholders as dividends.

Income Statement

A financial statement that shows a company’s revenues and expenses over a specific period, providing insight into its profitability.