Question: The problem is shown in the figure 1. Consider the consumption-savings decision of a household facing one of the following scenarios: i) The household's inceme

The problem is shown in the figure

1. Consider the consumption-savings decision of a household facing one of the following scenarios: i) The household's inceme falls due to a planned retirement. ii) The household's income falls due to an unexpected reduction in work hours. Using the logic of the permanent income hypothesis, explain why the household will react differently to these two reductions in income. [3 points]

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