In Chapter 13, we studied how persistent total factor productivity shocks in a closed economy can provide an explanation for business cycles. In the second model studied in this chapter, determine the effects of a persistent increase in total factor productivity on domestic output, consumption, investment, and the current account surplus. Are the predictions of the model consistent with what you observe in Figure 15.10? Explain why or why not. Persistent total factor productivity shocks in a small open economy would result in V domestic output, V consumption, V investment, and V the current account surplus. The predictions of the model V with what is observed in Figure 15.10. Yd yd Ys No in Real Interest Rate r Y2 Real Aggregate Output