For many consumption activities skiing, for example the ...

[mcmcdaniel]

For many consumption activities  skiing, for example  the activity becomes more enjoyable as the consumer becomes more experienced.
 
  Assuming that training consumption is inexpensive relative to proficient consumption, do such activities make it more or less likely that a borrowing constraint will be binding?

Question 2

As a part of the tax cut package signed into law on December 17, 2010, the government reduced the employee portion of the payroll tax from 4 to 2 for 2011. According to the permanent-income hypothesis, households that smooth consumption will
 
  A) use all of the extra income generated by this tax reduction for consumption during 2011.
  B) use a large portion of the extra income generated by this tax reduction for consumption during 2011.
  C) use most of the extra income generated by this tax reduction as saving during 2011.
  D) split the income evenly between consumption and saving during 2011, since the tax cut will expire after one year and consumption is smoothed.

[juiceman1987]

Answer to Question 1

Such activities encourage a shift of consumption into the future. The decrease in current consumption makes a binding borrowing constraint less likely.

Answer to Question 2

C

[mcmcdaniel]

YES! Correct, THANKS for helping me on my review

[xthemafja]

Gracias!