Permanent-income hypothesis is that fiscal policy operates

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Reference no: EM13732335

An important implication of the permanent-income hypothesis is that fiscal policy operates with a lag.

a. Explain why a permanent increase in government spending may cause the IS curve to shift out slowly over time rather than all at once.

b. If permanent income is a weighted average of last period's and this period's income, what determines the speed at which the IS curve shifts out over time?

Reference no: EM13732335

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