Question 5 [20 pts] Consider the Real Intertemporal Model studied in class. Assume the domestic country receives some new machines from a foreign country which contribute to increase the current capital K.

1. How will this increase in capital K affect the Ns , Nd , Ys , and Yd curves? Give the driver of each shift. [10 pts]

2. Assuming the change in Ys is in absolute value more important than the change in Yd , what is the final impact on the equilibrium output, interest rate employment, the real wage, consumption, and investment? Explain your results. [10 pts]