In 1995 several tax bills were debated in congress that

Question

 Year                             Consumption                            Disposable

                                                Spending                                  Income (DI)

            1991                             1,200                                        1,500

            1992                             1,440                                        1,800

            1993                             1,680                                        2,100

            1994                             1,920                                        2,400

            1995                             2,160                                        2,700

In 1995, several tax bills were debated in Congress that would have provided greater tax incentives for saving. (None were enacted.) If such saving incentives had been enacted, and had been successful, how would the consumption function have shifted?

 

Explain why permanent tax cuts are likely to lead to bigger increases in consumer spending than are temporary tax cuts.