Permanent income has smaller effect on consumption than temporary income.

Permanent income is your average lifetime income. 

Permanent income has no effect on saving. 

Permanent income is constant. 

increases saving and increases consumption.

decreases saving and increases consumption.

increases saving and decreases consumption.

decreases saving and decreases consumption. 

The consumption function is downward sloping. 

and saving decrease as income increases. 

so the marginal propensity to consume is negative. 

This is shown as a movement along the consumption function. 

precautionary savings will increase  and consumption will go down. 

precautionary savings will decrease and consumption will go up. 

precautionary savings will decrease and consumption will go down. 

precautionary savings will increase and consumption will go up. 

Figure C

Figure B

Figure A

Figure D

The consumer is completely aware of anticipated changes in future income. 

There are high tax rates on anticipated changes in future income.

The consumer is not aware of anticipated changes in future income.

The consumer cannot change the consumption. 

is same for every household. 

is constant. 

is between 0 and 1. 

cannot be 1. 

a large change in consumption.

no change in MPC

a small change in consumption.

zero change in saving