Consider the real intertemporal model with investment. Suppose there are two possible cases.

1. A temporary increase in total factor productivity(TFP).

2. A permanent increase in total factor productivity(TFP).

We are interested in the similarities and differences between the two cases. Which of the following statements istrue?

A.

A temporary increase in TFP will cause a decrease in the real interestrate; A permanent increase in TFP will cause an ambiguous effect on the real interest rate.

B.

A temporary increase in TFP will cause an increase inoutput; A permanent increase in TFP will cause an ambiguous effect on output.

C.

A temporary increase in TFP will cause a decrease in the real interestrate; A permanent increase in TFP will cause an increase in the real interest rate.

D.

A temporary increase in TFP will cause an increase in the real wagerate; A permanent increase in TFP will cause a decrease in the real wage rate.

E.

In bothcases, the equilibrium wage will be higher