Suppose that the central bank adopts a nominal interest rate target, and interpret this model as a goal. Now assume there is an increase in the total factor productivity that is not observed by the central bank.

1. According to the real intertemporal model seen in class, what would be the effect on the real interest rate. ([03 pts])

2. How will the central bank respond to this change? ([04 pts])

3. What is the final impact of such change on equilibrium real and nominal variables. ([10 pts])