Author Question: During the 2007-2009 financial crisis, many households found themselves with debts to repay. How ... (Read 51 times)

soccerdreamer_17 · **on:** Jun 30, 2018

During the 2007-2009 financial crisis, many households found themselves with debts to repay. How might this explain the consumer response to the 2008 Tax Rebate?

What will be an ideal response?

Question 2

Tobin's q is the ratio of the

A) dividend payments of a firm to the current stock price of the firm.
B) market value of a firm to the replacement cost of its capital.
C) current stock price of a firm to the number of outstanding shares of stock in the firm.
D) current stock price of a firm to the total earnings of the firm.

triiciiaa · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

The temporary tax rebate did not add much to permanent income, so it's no surprise that most of the money was not added to current spending. However, the immediate reduction in household debt increases lifetime resources. Generally, the cost of debt service is higher than the expected return on saving, so permanent income rose further and gave some boost to current consumption.

Answer to Question 2

B