Suppose That Family a Borrows Money When Its Car Breaks

Multiple Choice

Suppose that Family A borrows money when its car breaks down and saves money when the wife receives a holiday bonus from her employer. Suppose that Family B borrows money to buy elaborate birthday presents for the children and spends the husband's holiday bonus on a vacation to Florida. Which of the following is correct?

A) Both Family A's and Family B's spending habits suggest that they base their purchasing decisions on transitory income.
B) Family A's spending habits suggest that it bases its purchasing decisions on transitory income rather than permanent income. Family B's spending habits suggest that it bases its purchasing decisions on permanent income rather than transitory income.
C) Family A's spending habits suggest that it bases its purchasing decisions on permanent income rather than transitory income. Family B's spending habits suggest that it bases its purchasing decisions on transitory income rather than permanent income.
D) Both Family A's and Family B's spending habits suggest that they base their purchasing decisions on permanent income.