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Part 1 (3 points each) The following questions relate to the real intertemporal model of Chapter 11. Your explanations should be based on the optimal

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Part 1 (3 points each) The following questions relate to the real intertemporal model of Chapter 11. Your explanations should be based on the optimal consumer and/or firm behavior in response to each change. 1. Explain how a decrease in current total factor productivity affects the current aggregate labor demand curve. 2. Explain how a decrease in real government spending (coupled with a decrease in taxes to maintain government budget balance) affects the current aggregate labor supply curve. 3. Explain how an increase in the real interest rate affects the current aggregate labor supply curve. 4. Explain how an expected decrease in future total factor productivity affects the current aggregate output demand curve. 5. Explain how a decrease in the current capital stock affects the current aggregate output supply curve. Part 2 (2 points each) For each of the scenarios above, illustrate graphically the equilibrium response in both the current labor and output markets, You should draw the supply and demand curves for each market, clearly show which curve(s) shift and the direction of the shift, and show the equilibrium prices and quantities before and after the change, Note: In addition to the direct effect that you are asked to explain in the questions above, there may also be effects on other supply or demand curves, so multiple curves could be shifting!)

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