How Does an Increase in Expected Future Income Affect the Consumption Function

An increase in expected future income will cause current consumption to increase the current saving to decrease.

What happens when expected future income increases?

When the consumer gets an increase in expected future income, again both current and future consumption increase. Since current income does not increase, but current consumption does, saving decreases. When the consumer gets an increase in wealth, both current and future consumption again rise.

How do expectations about future income affect current and future spending?

Example: If people grow more concerned about job security and future expected income, they will reduce their consumption spending at all levels of disposable income. An expected tax cut that is viewed as permanent could increase current consumption. Expectations about future prices can also affect current consumption.