Question 1: (25 marks) Consider the Real Business Cycle (RBC) model with money studied in class. Assuming there is a permanent increase in Total Factor Productivity. Answer the following questions and use diagrams to support your answer. a) (8 marks) Explain the impacts of this shock on the labour market in the first period. b) (8 marks). How would the shock impact aggregate output and the interest rate in equilibrium? c) (9 marks) For simplicity, in this question we assume there is no change in the real interest rate. How would the shock impact the price level? Now suppose that the monetary authority's objective is to keep the price level stable. Given this goal, how should the Central bank react in the face of the TFP shock. Question 1: (25 marks) Consider the Real Business Cycle (RBC) model with money studied in class. Assuming there is a permanent increase in Total Factor Productivity. Answer the following questions and use diagrams to support your answer. a) (8 marks) Explain the impacts of this shock on the labour market in the first period. b) (8 marks). How would the shock impact aggregate output and the interest rate in equilibrium? c) (9 marks) For simplicity, in this question we assume there is no change in the real interest rate. How would the shock impact the price level? Now suppose that the monetary authority's objective is to keep the price level stable. Given this goal, how should the Central bank react in the face of the TFP shock