Suppose That Family a Borrows Money When Its Car Breaks

question 347

Multiple Choice

Suppose that Family A borrows money when its car breaks down and saves money when the wife receives a holiday bonus from her employer. Suppose that Family B borrows money to buy elaborate birthday presents for the children and spends the husband's holiday bonus on a vacation to Florida. Which of the following is correct?

• A)Both Family A's and Family B's spending habits suggest that they base their purchasing decisions on transitory income.
• B)Family A's spending habits suggest that it bases its purchasing decisions on transitory income rather than permanent income. Family B's spending habits suggest that it bases its purchasing decisions on permanent income rather than transitory income.
• C)Family A's spending habits suggest that it bases its purchasing decisions on permanent income rather than transitory income. Family B's spending habits suggest that it bases its purchasing decisions on transitory income rather than permanent income.
• D)Both Family A's and Family B's spending habits suggest that they base their purchasing decisions on permanent income.

---

Definitions:

Specific Amount

A specific amount refers to a particular sum or quantity of something, defined by a number or measure.

New Products

Items that have been recently developed or introduced to the market.

Inverted-U Theory

A hypothesis suggesting the relationship between a certain factor and its effect follows an inverted U-shape, indicating optimal levels at the midpoint of the factor's intensity.

Industry Concentration

The extent to which a small number of firms dominate the total output, sales, or employment of an industry.