Question: Suppose there is a decrease in current government spending. Use the real intertemporal model (with production and investment) to analyse the effects of this shock

Suppose there is a decrease in current government spending. Use the real intertemporal model (with production and investment) to analyse the effects of this shock on the economy. Draw diagrams for the labour and goods markets, and the production function. Determine the equilibrium effects of a decrease in current government spending on employment, output, consumption, investment, real wages and the real interest rate. Provide a detailed economic analysis explaining your results with the aid of the diagrams.

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