Suppose that production is initially at the natural level, then a new technology is discovered, which makes it possible to produce much more fuel-efficient engines for cars

(a) How will this affect investment, consumption, and the IS curve? (Hint: how are the

variables in the investment and consumption functions affected?)

(b) What happens to production and the interest rate if the central bank keeps the money supply constant?

(c) The central bank can adjust the money supply so as to control the interest rate. What do you think the central bank should do with the interest rate?