Consider the monetary intertemporal model discussed in class Assume the government plans to increase current government spending by 10000 and decrease the future government spending by 10000 Using diagrams, determine the equilibrium effects on the output, interest rate, employment, real wage, consumption, and investment (Note To be awarded the full marks, you need to describe how theNs, Nd, Ys, andYdcurves shift and state the driver of each shift ) How does the equilibrium price change following this policy Assuming the Central Bank adopts an inflation targeting policy, how should it react to this change

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Question: Consider the monetary intertemporal model discussed in class. Assume the government plans to increase current government spending by 10000 and decrease the future government spending

Consider the monetary intertemporal model discussed in class. Assume the government plans to increase current government spending by 10000 and decrease the future government spending by 10000.

Using diagrams, determine the equilibrium effects on the output, interest rate, employment, real wage, consumption, and investment.

(Note: To be awarded the full marks, you need to describe how theNs, Nd, Ys, andYdcurves shift and state the driver of each shift.)

How does the equilibrium price change following this policy? Assuming the Central Bank adopts an inflation targeting policy, how should it react to this change?

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