Q1.Suppose there is a shift in the representative consumer's preferences. Namely, the consumer prefers, given the real market interest rate, to consume more current leisure and less current consumption goods.

(a) Determine the effects of this on current aggregate output, current employment, the current real wage, current consumption, and current investment.

(b) Explain your results. What might cause such a change in preferences of consumers?

Q2. In the monetary inter-temporal model, suppose that money supply is fixed for all time.

1. (a)Determine the effects of a temporary increase in the quantity of government purchases on current equilibrium output, employment, the real wage, the real interest rate, the nominal interest rate, and the price level. Explain your results.
2. (b)Determine the effects of a decrease in the capital stock, brought about by a war or a natural disaster, on current equilibrium output, employment, the real wage, the real interest rate, the nominal interest rate and the price level. Explain your results.