With a temporary change in technology the model predicts:
A)the interest rate will be procyclical.
B)a lower interest rate will motivate households to increase current real consumption.
C)a higher interest rate will motivate households to increase current real saving.
D)all of the above.

Question

Quizplus · Accepted Answer

A temporary change in technology will increase productivity and output in the short run, leading to an increase in income and therefore an increase in consumption. This will lead to a procyclical interest rate (A). Additionally, a lower interest rate will make borrowing cheaper and therefore increase current real consumption (B), while a higher interest rate will make saving more attractive and therefore increase current real saving (C). Therefore, all of the above choices are correct.

With a Temporary Change in Technology the Model Predicts