The problems given below are based on Real Inter temporal model with investment
1. Find out, how following will affect slope of the output demand curve, and describe your results:
a) Inter temporal substitution effect of real interest rate on current consumption increases.
b) Demand for investment goods becomes less responsive to real interest rate
2. On investment diagram(r on vertical axis, I on horizontal axis), sketch firm's investment schedule. Show what occurs to this curve in the following three cases( sketch a separate diagram for each case):
a) Stock of current capital suddenly increases
b) Future total factor productivity decreases
c) Current total factor productivity increases( but not future one)