This will depend on whether this increase is temporary or permanent (winning the lottery or increased salary). A temporary increase in income will mainly lead to a temporary increase in savings, whereas a permanent increase in income will increase current consumption. This is referred to as the permanent income hypothesis.

No it is not. According to PI-H you need to have a consumer behaviour which is based on your permanent income, but if you are very sensitive about your income today your consumption today will depand on your income today so they are not consistent.

hi. i think this question is from ec201 assignment. so i would like to know the answer as well. bye,.

This is an explanation for how wealth or income distribution will be in the future. Some might have the economic hypothesis that the economy will continue to grow.

TEMPORARY ACCOUNT