Question: Consider the Real Intertemporal Model studied in class. Assume the domestic country receives some new machines from a foreign country which contribute to increase the

Consider the Real Intertemporal Model studied in class. Assume the domestic country receives some new machines from a foreign country which contribute to increase the current capital K.

1. How will this increase in capital K affect the Ns, Nd, Y s, and Y d curves? Give the driver of each shift.

2. Assuming the change in Y s is in absolute value more important than the change in Y d, what is the final impact on the equilibrium output, interest rate employment, the real wage, consumption, and investment? Explain your results.

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