The Callaway family owns a small bait and tackle shop in a resort town in Wiscon
ID: 1205875 • Letter: T
Question
The Callaway family owns a small bait and tackle shop in a resort town in Wisconsin. An economic recession reduces the number of tourists for one summer, which reduces the family’s income for that year. For the Callaway family, their
a. transitory income for the year of the recession likely exceeds their permanent income.
b. permanent income likely exceeds their transitory income for the year of the recession.
c. permanent income will be more affected by the recession than their transitory income.
d. Both a and c are correct.
Explanation / Answer
Permanent income is, the expected long term average income.
Transitory income is the short lived income. It can be measured by subtracting permanent income form the measured income.
During recession, the transitory income falls below the permanent income.
So answer should be B.