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Suppose that households change their preferences so that they wish to work and consume more in each year. Use a variant of Figure 8.15 to determine...

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
capital, K?

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Suppose that households change their preferences so that they wish to work and consume more
in each year
a) b) c) We can see that labour supply has increased. Therefore, Consumption will increase....

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