Using the Real Intertemporal Model, suppose the government announces a decrease in future government spending G^'.

1)How will you expect the decrease in G^' to affect the N^s , N^d , Y^s , and Y^d curves? Give the driver of each shift.

2)Assuming that the change in Y^d is in absolute value more important than the change in Y^s , what are the equilibrium effects on Y^* and r^* ?

3)Taking into account the final adjustment in the labour market, do you think the equilibrium employment will increase or decrease?

4)What are the equilibrium effects on consumption and Investment C^* and I* ?