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.

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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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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