Question: Question 4 Using the Real Intertemporal Model seen in class, suppose the govern- ment announces a decrease in future government spending G. 1. How will

Question 4 Using the Real Intertemporal Model seen in class, suppose the govern- ment announces a decrease in future government spending G. 1. How will you expect the decrease in G' to affect the Ns, Nd, Ys, and Yd curves? Give the driver of each shift. (03 marks) 2. Assuming that the change in Yd is in absolute value more important than the change in Y, what are the equilibrium effects on Y* and r*? (05 marks) 3. Taking into account the final adjustment in the labour market, do you think the equilibrium employment will increase or decrease? (04 marks) 4. What are the equilibrium effects on consumption and Investment C'* and I*? (03 marks) Total: 15 marks

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