Using the Real Intertemporal Model, suppose the government announces a decrease in future government spending G '
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Question:
Using the Real Intertemporal Model, suppose the government announces a decrease in future government spending G'. (Provide detailed answers for the following parts)
a)How will you expect the decrease in G' to affect the Ns , Nd , Ys , and Yd curves? Give the driver of each shift.
b)Assuming that the change in Yd is in absolute value more important than the change in Ys , what are the equilibrium effects on Y* and r* ?
c)Taking into account the final adjustment in the labour market, do you think the equilibrium employment will increase or decrease?
d)What are the equilibrium effects on consumption and Investment C* and I* ?
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