Chapter 1 1 A Real Intertemporal Model with Investment 451 2. What are three factors that determine current labor supply? 3. What is the marginal propensity to consume? 4. Explain the shape of the representative firm's demand for labor. 5. What rule does the representative firm follow in determining its optimal level of investment? 6. How is optimal investment for the firm affected by an increase in the current capital stock? 7. How is optimal investment affected by an increase in future total factor productivity? 8. Explain how an increase in the default premium affects the investment decision of the firm. 9. What is the government's budget constraint in the real intertemporal model? Can the government run a deficit or run a surplus in the current period? 10. What are the factors that shift the output supply curve? 11. What are the factors that shift the output demand curve? 12. How are aggregate output and the real interest rate determined in competitive equilibrium? 13. What are the effects of a temporary increase in government purchases on the real interest rate, aggregate output, employment, the real wage, consumption, and investment? 14. What are the effects of a decrease in the current capital stock on the real interest rate, aggregate output, employment, the real wage, consumption, and investment? 15. What are the effects of an increase in total factor productivity on the real interest rate, aggregate output, employment, the real wage, consumption, and investment? Explain how these results relate to key business cycle facts and the causes of business cycles. 16. Determine the equilibrium effects of an anticipated increase in future total factor productive ity in the real intertemporal model. Explain why these effects are different from the effects of an increase in current total factor productivity. 17. How do credit market frictions affect aggregate economic activity? Explain how tax policy can mitigate credit market frictions. 18. How does a sectoral shock affect average labor productivity? To what extent do these shocks explain the recent recession