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Assume in a two-period real inter-temporal mode]1 the utility function has the following separable form: U(C, C", N, N') : {109(0) | ntog NH +33 [309(0') | nitog NW] [1] MvI 'v' Period 1 Period 2 There are two important parameters in this preference. Parameter 1} [or 11') indicates consumer's preference for leisure (or dislike for labor) while ,8 indicates the degree of impatience. Now, consider the eects of a temporary increase in 17 (only in the rst period) and the effects of an increase in ,8 on the real economy. 1. First, suppose there is a shift in the representative consumer's preference. Namely, the con- sumers prefer, given the equilibrium interest rate and wage, to enjoy less leisure or equiva- lently, to work harder and make more consumption. That means a decrease of 1?. Determine the effects of this change on the current aggregate output Y, current employment N, current consumption C, current investment I, current wage w and interest rate I. Use appropriate graphs to illustrate. 2. Second, suppose the representative consumer becomes more patient. That means an increase of ii. Determine the effects of this change on all equilibrium quantities and prices as above. Use appropriate graphs to illustrate. Activate Wir' Go to Setz'ngs in