According to the permanent income hypothesis

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Reference no: EM13800949

According to the permanent income hypothesis, how will the paths of borrowing and consumption change in response to:

a. A temporary decrease in income when it occurs.

b. A permanent decrease in income when it occurs.

c. Are the answers different if the changes in income are unanticipated, i.e. if they are news? Comment on the size of the marginal propensity to consume and the size of the multiplier.

Reference no: EM13800949

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