Consider the intertemporal model with investment discussed in class. Assume the government plans to decrease current government spending by 10000 and increase the future government spending by 10000.

1. How will you expect the Ns , Nd , Y s , and Y d curves to shift following these changes? Give the driver of each shift. (05 marks)

2. Determine the equilibrium effects on the output, the real interest rate, the employment and the real wage. (06 marks)

3. Determine the equilibrium effects on consumption and investment. (04 marks)