In each of the following cases, explain whether permanent income would change and if so, how much it would change initially if permanent income is calculated using adaptive expectations or rational expectations.
(a) Due to increased health care costs, Food-2-Go reduces its work force by 10 percent. In order to maintain its output, it requires the employees it retains to work overtime on a regular basis. (Answer this question for both the workers retained and the workers let go by Food-2-Go. Assume that when workers let go by Food-2-Go get new jobs, they will earn less than they earned at Food-2-Go.)
(b) An unusually snowy winter forces a ski resort to offer its help overtime pay in order to provide the extra services demanded by the extra skiers it has that season.
(c) A person receives a promotion that she was expecting. However, the salary that she earns in her new job is much more than she was expecting.