In the real business cycle model, suppose that government spending decreases temporarily.

a. Determine the equilibrium effects of this decrease. Could business cycles be explained by fluctuations in G? In other words, does the model replicate the key business cycle facts from Chapter 11 when subjected to temporary shocks in government spending? Explain.

b. Now suppose that temporary increases in government spending lead to permanent increases in total factor productivity, perhaps because some government spending improves infrastructure and makes private firms more productive. Show that temporary shocks to government spending of this type could lead to business cycles that are consistent with the key business cycle facts, and explain your results.