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Consider the effects of an increase in two different types of income: permanent income and transitory income. In general, an increase in income will result in a lower corresponding increase in consumption. Changes in this type of income will have a comparatively multiplier effect. If the government wants to maximize the impact of a tax decrease on consumer spending, it should pass a permanent tax cut. issue a one-time tax rebate. pass a one-year tax cut. pass a two-year tax cut.
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This type of income is expected to continue in the future and is likely to result in a higher increase in consumption. People tend to adjust their spending habits based on their long-term income expectations. On the other hand, transitory income refers to Show more…
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