(3) Equilibrium in the Cookies Market Consider the classical model we saw in class. Imagine that the supply depends positively on the interest rate, while consumption demand depends negatively. Imagine that the economy is in a position of equilibrium. - (i) Consider a temporary increase in the level of technology (that is Al increases but A2 and all future A remain the same). This temporary increase could represent good weather (which affects today's supply but not tomorrow's). How will the equilibrium c, y and r in period 1 change? Why? Explain (and use a diagram) - (ii) Consider now a permanent increase in the level of technology ( Al , A2 , A3, etc all increase in the same propor- tion). This permanent increase in A could be the result of a technological improvement. How will the equilibrium c, y and r in period 1 change? Is your answer different from (I)? If so, why? Explain (and use a diagram) 0 (iii) Consider nally an anticipated increase in A. That is, imagine that while A1 does not increase, we KNOW that Ag and all future A will increase (some better technology has been discovered, but it will not be implemented until next year). How will the equilibrium c, y and r in period 1 change? If anything happened to current levels of c, y and I, explain why? Explain (and use a diagram)