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Increase in future government spending g

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Reference no: EM132482401

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, Y s, and Y d curves? Give the driver of each shift. 
  2. Assuming that the change in Y d is in absolute value more important than the change in Y s, what are the equilibrium effects 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. Hint: Use the fact that the equilibrium Y? and N? are linked by the production function Y? =zF(K,N?).
  5. What are the equilibrium effects on consumption and Investment C? and I??  (Hint: Use the income-expenditure identity Y ? = C? + I? + G.)

Reference no: EM132482401

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