Following the productivity slowdown discussed in problem 8, the U.S. economy experienced a relatively quick transition to the electronic age of computers and the Internet and many of the outward effects of the 1970s energy crises faded as a result.
a. Use the aggregate demand and supply model to show the effects of widespread computer and Internet usage on the economy if spending growth remains unchanged.
b. Suppose that velocity increases due to greater consumer confidence because of your findings in part a. First, does greater consumer confidence make sense? Why?
c. Second, how will this affect inflation and GDP growth in the long run?