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The discovery of a new technology increases the expected future total factor productivity (AFuture). Assume we are starting in long run equilibrium. a) Use the
The discovery of a new technology increases the expected future total factor productivity (AFuture). Assume we are starting in long run equilibrium. a) Use the classical IS-LM model to determine the effect of the increase in the future total factor productivity on current output, the real interest rate, consumption and investment. What is the very short run effect on Prices? b) Now expand this to the AD-AS - assuming that the short run AS is upward sloping due to misperception of producers. What happens now to prices. c) Now show both in the IS-LM and AD-AS the move to the long run
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