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Consider the real intertemporal model with investment. Suppose the government increases government purchases G. Carefully explain using diagrams and math the size of the partial
Consider the real intertemporal model with investment. Suppose the government increases government purchases G. Carefully explain using diagrams and math the size of the partial government expenditure multiplier assuming the consumption function is linear. In a diagram
show the total government expenditure multiplier and carefully comment on its
magnitude. What does the Ricardian equivalence theorem have to say about
the size of the government expenditure multiplier?
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