Why Is It Important That Consumers Respond Differently to Temporary

question 18

Multiple Choice

Why is it important that consumers respond differently to temporary and permanent increases in their incomes?

• A) This implies that consumption will be highly sensitive to temporary changes in income.
• B) This implies that a temporary tax cut will have a larger effect than a permanent one on current consumption.
• C) this tells us that the timing of income increases for consumers is irrelevant.
• D) this has implications for the relative effects of temporary and permanent tax cuts.

---

Definitions:

Net Income

The total profit of a company after all expenses, including taxes, have been subtracted from total revenues.

Operating Expenses

Costs associated with running the day-to-day operations of a business, excluding costs related to production or manufacturing.

Advanced Company

A designation often used to describe a business that operates with significant technological advancements or innovative products compared to competitors.

Absorption Costing

Absorption costing is an accounting method that includes all manufacturing costs - direct labor, direct materials, and both variable and fixed manufacturing overhead - in the cost of a product.