Suppose that households change their preferences so that they wish to work and
consume more in each year.
a. Use a variant of Figure 8.15 to determine the effects on the labor market. What happens to
labor input, L, and the real wage rate, w/P ?
b. Use a variant of Figure 8.8 to determine the effects on the market for capital services. What happens to the real rental price, R/P? What happens to the interest rate, i?
c. What happens to consumption, C, and investment, I? What happens over time to the stock of
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