Suppose the government's goal is to increase consumption in the year 2002 . Its two options are (1) an announced one-time $1 billion dollar tax cut for 2002 or (2) an announced permanent tax cut (2000 and thereafter) of $1 billion dollars starting in 2002. Which would more effectively achieve the government's goal?
a. the one-time tax rebate, if Friedman's permanent income hypothesis is correct
b. the permanent tax cut, if Friedman's permanent income hypothesis is correct
c. either option would do because each will increase consumption by the same amount
d. the one-time tax rebate, if Duesenberry's relative income hypothesis is correct
e. the permanent tax cut, if Duesenberry's relative income hypothesis is correct
B
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