3. Upward Sloping Ys (again!): Suppose the equations characterizing the Neoclassical equilibrium model with "a twist", fiscal policy, and money are as follows. Ct = 'd ( Yt - Gt, Yt+1 - Gt+1, rt) Nt = NS ( wt, Ot, rt) Nt = Nd ( wt , At , Kt ) It = Id (rt, At+1, Kt) Yt = Ct+ It + Gt Yt = AtF (Kt, Nt) Mt = PtMd (it, Yt) It = it - Tit+ 1 Here, as in the last problem set we consider an alternative labor supply function that depends positively on the real interest rate rt. (a) What are the exogenous variables in the model? What are the endogenous variables? (b) Graphically derive the Y's curve with the alternative labor supply function NS ( Wt, Ot, rt) .(c) Suppose there is an increase in Gt. Show how this effects the equilibrium of the model. Is the government spending multiplier in equilibrium zero, positive but less than one, equal to one, or greater than one. Explain. (d) If the labor supply were more elastic, i.e., the labor supply curve as a function of the real wage is atter, how does this change the equilibrium response to an increase in G; you solved for in (c). Does the equilibrium multiplier increase, decrease or stay the same. (e) Does It react more or less to an increase in 0', when labor supply is a function of the real interest rate than in the standard case where labor supply does not depend on the real interest rate. (f) What about Pt? Does it react more or less to an increase in 0', when labor supply is a function of the real interest rate than in the standard case. (g) Does the classical dichotomy hold in this economy? Explain briey