Please answer all parts of the question on paper and please show all work.

Question 3 (Equilibrium) Since the Covid-19 crisis is nearing an end, the government is planning to phase out government spending programs. In other words government spending is expected to decrease. Explain how this would affect the equilibrium using the two period macroeconomic model that you have learnt (Draw the graph for the change in equilibrium and explain how the variables change). Show the changes in both the labor market and the goods market using the 2 step approach (direct and indirect effects) Discuss the changes in 8. HP'P'PP'P!' Output Y Output demand YD Output supply 1:; Labor N Labor demand ND Labor supply N3 Interest rate r Wage w Feel free to make assumptions (about whether substitution effect is stronger than income effect, whether change in output demand is greater than change in output supply and so on