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Decrease in future government spending

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Consider the Real Intertemporal Model, assume the government made a public announcement regarding a decrease in future government spending G'. Assume all agents have perfect information.

1. How will you expect the Ns(r), Nd , Ys , and Yd curves shift? Give the driver of each shift and illustrate your results using some appropriate graphs.

2. What are the final effects on the current equilibrium output, the employment, the real wage, the real interest rate Explain your results.

Reference no: EM132405913

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