Question: Question 5 Using the Real Intertemporal Model covered in class, assume 2 decreases in the current period1 and the consumer expects the future productivity 2:

Question 5 Using the Real Intertemporal Model covered in class, assume 2 decreases in the current period1 and the consumer expects the future productivity 2:" to increase. 1. Describe the expected shifts in the N 3, N 0!, Y3, and Yd curves. Give the driver of each shift. (05 marks) 2. Assume the changes in Yd and Y3 are such that Y" remains unchanged. How does the equilibrium interest rate change? (05 marks) 3. Using a graph, illustrate how the nal interest rate adjustment in the labour market affect the equilibrium employment. Will the equilibrium employment decrease or increase? (05 marks) 4. Comment the nal changes in the equilibrium consumption (0*) and investment (I *). (05 marks) Total: 20 marks

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