According to the permanent income hypothesis, consumption depends on the
present discounted value of income. An increase in the real interest rate will
aect the discounted value of income. Consider the case where the net present
value of your labor income is negatively related to interest rate
C = acY - bcr
where ac > 0 is the constant consumption propensity. bc > 0 is the sensitivity
to interest rate changes.
 Combining with the investment decision It = aIY - bIr, rederive the IS
curve.
 How and why does it dier from the original IS curve?
 How does this aect the eectiveness of the monetary policy?