# Problem 2 (20 points)Explain how the following changes affect the .pdf

Problem 2 (20 points) Explain how the following changes affect the slope of the aggregate output curves of the real intertemporal model with investment. (a) (10 points) Output supply curve: (i) The marginal product of labor decreases at a faster rate than the increase in the quantity of labor hired. (ii) The intertemporal substitution effect of the interest rate on current leisure de- creases. (b) (10 points) Output demand curve: (i) The marginal propensity to consume increases. (ii) The demand for investment goods becomes less responsive to the real interest rate. (iii) The intertemporal substitution effect of the real interest rate on current consump- tion increases..

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### Problem 2 (20 points)Explain how the following changes affect the .pdf

• 1. Problem 2 (20 points) Explain how the following changes affect the slope of the aggregate output curves of the real intertemporal model with investment. (a) (10 points) Output supply curve: (i) The marginal product of labor decreases at a faster rate than the increase in the quantity of labor hired. (ii) The intertemporal substitution effect of the interest rate on current leisure de- creases. (b) (10 points) Output demand curve: (i) The marginal propensity to consume increases. (ii) The demand for investment goods becomes less responsive to the real interest rate. (iii) The intertemporal substitution effect of the real interest rate on current consump- tion increases.
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