Using the Real Intertemporal Model seen in class, suppose the government announces an increase in future...

Using the Real Intertemporal Model seen in class, suppose the government announces an increase in future government spending G’.

1. How will you expect the increase in G’ to affect the Ns, Nd, Ys, and Yd curves? Give the driver of each shift.

2. Assuming that the change in Yd is in absolute value more important than the change in Ys, what are the equilibrium effect on Y*? and r*?

3. Taking into account the final adjustment in the labour market, do you think the equilibrium employment will increase or decrease?

4. What are the equilibrium effect on consumption and Investment C*? and I*?

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Expert Solution

Rahul Sunny answered 3 weeks ago

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