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

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Economics

Using the Real Intertemporal Model seen in class, suppose thegovernment announces an increase in future government spendingG’.
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 moreimportant than the change in Ys, what are the equilibrium effect onY*? and r*?
3. Taking into account the final adjustment in the labourmarket, do you think the equilibrium employment will increase ordecrease?
4. What are the equilibrium effect on consumption andInvestment C*? and I*?

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