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.

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter18: The Keynesian Model

Section: Chapter Questions

Problem 9SQP

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