In the real intertemporal model,if future total factor productivity increases,this captures the effects of
A) intemporal substitution.
B) Ricardian equivalence.
C) the government expenditure multiplier.
D) news shocks.

Question

Quizplus · Accepted Answer

In the real intertemporal model, a positive news shock (such as an increase in future total factor productivity) can lead to an increase in current consumption due to an optimistic outlook on future income. This effect is referred to as a news shock and is captured in the real intertemporal model. Therefore, choice D is the best answer. Choices A, B and C are not related to the effects of a positive news shock on the real intertemporal model.

In the Real Intertemporal Model,if Future Total Factor Productivity Increases,this