Using the Real Intertemporal Model, suppose the government announces a decrease in future government spending G1 while keeping the current spending G0 unchanged.

Assuming that the change in (yd)0 is larger than the change in (ys)0 in magnitude, what are the equilibrium effects on (Y)0 and r*?

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