Consumption change in absolute dollars

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Reference no: EM136794

Q. Assume you are a typical consumer and expect to work for 40 years (from this point onward) and to live for 10 years beyond retirement. Assume as well that you have perfect foresight, and, if necessary, have the ability to borrow to support future consumption (i.e., you have no liquidity constraints). How much does consumption change this year in absolute dollars ($ ΔC) as a result of a $5,000 annual tax cut to your income, if the tax cut:

A. is permanent, and will begin immediately (this year)?

B. will last only for the current year (i.e., a 1-year temporary tax cut)

Reference no: EM136794

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