Suppose there is an increase in total factor productivity

(z)

. Answer a) to d) directly below.

Refer to income and substitution effects where relevant. Use diagram(s) as aid(s) in your

explanations.

a)

How and why does the real wage change?

b)

How and why does employment change?

c)

How and why does consumption change?

d)

How and why does output change?