Suppose there is a decrease in current TFP.

1. Analyzed through the one-period model, what are the impacts of the decrease inzon equilibrium wage rate, employment and output ? Please explain. Illustrate using the diagram, list and explain the move of each curve in words and label the competitive equilbirium.
2. Analyzed through the two-period model, what are the impacts of the decrease inzon equilibrium wage rate, employment and output in the current period? Please explain. Illustrate using the diagram, list and explain the move of each curve in words and label the competitive equilbirium.
3. Suppose the decrease inzis persistent andzis also lower than its long-term trend. What are the impacts of the decrease inzon equilibrium wage rate, employment and output in the current period? Please explain. Compare with your answers in the previous question. Illustrate using the diagram, list and explain the move of each curve in words and label the competitive equilbirium.
4. Supose credit market for firm borrowing is imperfect with limit commitment, so collateral is required for firm borrowing.
5. (a)Does this make firm's investment more or less responsive to changes in real interest rate?
6. (b)Does this credit market friction makeYdcurve steeper of flatter? Why? Illustrate using the diagram of aggregate expenditure and aggregate income.
7. (c)Does the credit market friction exacerbate or mitigate the impact of the persistent decrease inz[as in 3.] on current output?