2. What is the effect of current capital stock K going up on Y , N, C, I, r and w? Explain it. Problem 3. Suppose that future government expenditure G increases. Determine the effect of this on current macroeconomic variables, i.e., Y , N, C, I, r and w. Explain your results. Problem 4. Use the two-period model of production economy to analyze the following. Suppose the nation experiences a major earthquake that destroys significant capital stock. Suppose the destruction reduces current national income (i.e., the quantity of Y decreases). If you are the policy maker, will you conduct an expansionary fiscal policy (i.e., increase current government spending) or a contractionary fiscal policy (i.e., decrease current government spending) so that the output can be restored up to the level before the earthquake? What would be the net effect of your policy after the earthquake