Professor Fester not only teaches about the permanent-income hypothesis, but lives it as well. Next year he will take a sabbatical and will receive only one half his normal salary. As a result, Fester's consumption will:
fall by one half. fall only a little but his saving will decline a great deal. fall by more by one half. probably increase because he now has more time to spend money.
Compared to the original Keynesian theory, consumption behavior implied in the permanent-income hypothesis makes:
fiscal policy quicker and more reliable. fiscal policy slower and less reliable. monetary policy quicker and more reliable. monetary policy slower and less reliable.
