Presume that the representative consumer’s preferences change, in that his/her marginal rate of substitution of leisure for consumption increases for any quantities of leisure and consumption.
1. Describe what this change in preferences means in more intuitive language.
2. What effects does this have on the equilibrium real wage, hours worked, consumption, and output?
3. Do you think that preference shifts like this might describe why economies experience recessions? Why or why not.