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Question 2 (35 points) In the monetary intertemporal model, there is an increase in total factor productivity due to innovation in technology in the current
Question 2 (35 points) In the monetary intertemporal model, there is an increase in total factor productivity due to innovation in technology in the current period. (a) In response to this change, explain using diagrams what happens to the equilibrium aggregate output, consumption, investment, employment, real wage, real interest rate, nominal interest rate, and price levels. Explain the reason for each shift in the diagrams. (b) Assume that the Central bank wants to keep the Price levels constant, what would be the monetary policy of the bank? Explain graphically (Sketch only the money market)
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