# Question: Suppose that there is a permanent increase in total factor

Suppose that there is a permanent increase in total factor productivity. Determine the implications of this for current macroeconomic variables, and show how the impact differs from the case where total factor productivity is expected to increase only temporarily. Explain your results.

**View Solution:**## Answer to relevant Questions

Suppose that z' increases and that K increases at the same time. Show that it is possible for the real interest rate to remain constant as a result. What does this say about the model’s ability to explain the differences ...In the monetary intertemporal model, show that it is possible to have an equilibrium where money is not held and only credit cards are used in transactions. Is there such a thing as a price level in this equilibrium? Does ...In the Friedman-Lucas money surprise model, suppose that the central bank wants to reduce the price level. Suppose the central bank has two options: (i) announce in advance that the money supply will decrease; (ii) surprise ...Suppose that the central bank observes a drop in real GDP, but does not know what caused this drop.(a) How would the central bank respond if it believed that GDP dropped because of a decline in total factor productivity, and ...Suppose that the central bank sets its interest rate target to achieve efficiency in response to temporary shocks to total factor productivity. Using diagrams, determine what the economy’s responses will then be to the ...Post your question