One Form of Economic Stimulus That State Governments Can Use

Multiple Choice

One form of economic stimulus that state governments can use is to exempt certain types of purchases from state sales tax. For example, a law that permanently exempts business equipment from state sales tax may stimulate purchases of these goods because the law effectively reduces the price of the equipment. Business equipment such as computers or vehicles are durable goods, so should we expect the tax exemption program to have more impact on equipment demand in the short run or long run?

A) More impact in the long run because business equipment demand becomes more income elastic in the long run
B) More impact in the long run because business equipment demand becomes more price elastic in the long run
C) More impact in the short run because business equipment demand becomes more income elastic in the long run
D) More impact in the short run because business equipment demand becomes more price inelastic in the long run