Question:

Suppose that the likelihood of a future military conflict increases. This can be modelled as G unchanged, as G' increases. Use the real intertemporal model to show graphically what happens to output, employment, real wages and the real interest rate. Also infer what happens to investment and consumption.

Note: Hoping you can provide a solution for the graphs and explanations as to why each variable (output, employment, real wages, and real interest rate) change.

Thanks