Consider the intertemporal production economy of Chapter 11. Suppose that there is a shift in the representative consumer’s preferences. Namely, the consumer prefers, given the market real interest rate, to consume less current leisure and more current consumption goods.
(a) Determine the effects of this on current aggregate output, current employment, the current real wage, current consumption, and current investment.
(b) Explain your results. What might cause such a change in the preferences of consumers?