According to the permanent hypothesis, households will tend to react to a temporary tax cut by:

Question

A. assuming the new tax level will be permanent.
B. saving most of the additional disposable income.
C. increasing consumption sharply in response to the higher disposable income.
D. temporarily increasing their magical propensity to consume

I'm stuck between B and D. any helpp?

Answer 1

Check this article.

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Answer 2

According to the permanent income hypothesis, households will tend to react to a temporary tax cut by