Question: Suppose there is a decrease in current TFP Suppose there is a decrease in current TFP. 1. Analyzed through the one-period model, what are the

Suppose there is a decrease in current TFP

Suppose there is a decrease in current TFP. 1. Analyzed through the one-period model, what are the impacts of the decrease in z on equilibrium wage rate, employment and output ? Please explain. Illustrate using the diagram, list and explain the move of each curve in words and label the competitive equilbirium. 2. Analyzed through the two-period model, what are the impacts of the decrease in 2 on equilibrium wage rate, employment and output in the current period? Please explain. Illustrate using the diagram, list and explain the move of each curve in words and label the competitive equilbirium. 3. Suppose the decrease in z is persistent and z' is also lower than its long-term trend. What are the impacts of the decrease in z on equilibrium wage rate, employment and output in the current period? Please explain. Compare with your answers in the previous question. Illustrate using the diagram, list and explain the move of each curve in words and label the competitive equilbirium. 4. Supose credit market for rm borrowing is imperfect with limit commitment, so collateral is required for rm borrowing. (a) Does this make rm's investment more or less responsive to changes in real interest rate? (b) Does this credit market friction make churve steeper of atter? Why? Illustrate using the diagram of aggregate expenditure and aggregate income. (c) Does the credit market friction exacerbate or mitigate the impact of the persistent decrease in z[as in 3.] on current output

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