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.
Question 2
According to liquidity preference theory, an increase in the price level would ________.
A) increase the demand for real money balances
B) decrease the supply of real money balances
C) decrease the real interest rate
D) all of the above
E) none of the above
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