Real Intertemporal Model Flashcards
In the real intertemporal model with investment, what decisions does the representative consumer have to make
The representative consumer makes choices over current consumption and leisure, and future consumption and leisure
The assumption that current-period labor supply is positively related to the current-period real wage is justified as long as the…
Substitution effect dominates the income effect in the short run.
An increase in lifetime wealth ________ current labor supply and _____________ current consumption demand
Decrease, Increase
When drawn against the current wage, the current labor supply shifts to the right if
Current Taxes Increase
In determining the benefit of additional investment to the representative firm, we consider the marginal product of
Future Capital - Investment is a LR focus
Firms discount future profits at the interest rate ‘r’ because
It is the same rate as for households.
When drawn against the real interest rate, the optimal investment schedule shifts to the right if the ___________ capital stock K ___________
Current, Decreases
When drawn against the real interest rate, the output supply curve is upward sloping because labor supply is ___________ in the real interest rate and labor demand is ____________ of the real interest rate
Increasing, Independent
In response to a temporary increase in government spending, the representative consumer consumes
less, and therefore increases their leisure
If future TFP increases, what happens to investment demand?
Increases
What could result in an increase of consumption demand and a decrease in labor supply?
A decrease in the current tax rate.
What is meant by an intertemporal choice?
Describes how current decisions made by a consumer, affects what options and decisions become available in the future. Theoretically, by not consuming today, future consumption may increase due to increased savings, and vice versa.
A temporary increase in government spending that leads to only a small decline in lifetime wealth likely shifts the output demand curve to the…
Right by more than the rightward shift in output supply.
The response of output following a natural disaster includes…
An increase in output demand and a decrease in output supply.
The equilibrium effects of a temporary increase in total factor productivity include…
An increase in the real wage and a decrease in the real interest rate.
