Tax Refunds and Consumer Spending. In 1999, the Internal Revenue Service began to mail out refund checks because of changes in the tax law in 1998. Economic forecasters predicted that consumption and...

Tax Refunds and Consumer Spending. In 1999, the Internal Revenue Service began to mail out refund checks because of changes in the tax law in 1998. Economic forecasters predicted that consumption and GDP would increase because of higher refunds on income taxes. Using each of the following assumptions, do you think the forecasters were correct? Answer yes or no.

a. Taxpayers were not aware they would receive refunds until they had completed their income tax statements.

b. Taxpayers did know they would receive refunds but, as consumers, based their spending decisions solely on their current levels of income.

c. Taxpayers did know they would receive refunds and, as consumers, based their consumption decisions on their permanent incomes.