Use the classical model of a closed economy (chapter 3) and the quantity theory of money (chapter 5, section 1) to predict how each of the following

Use the classical model

of a closed economy (chapter 3)

and the quantity theory of money

(chapter 5, section 1)

to predict how each of the following shocks would affect real aggregate

income (Y), the real interest rate (r), and the price of goods

and services (P) in a closed economy

in the long run, all else equal

.

For each shock, be sure to clearly state a prediction for all three

variables (up, down, or no change) and illustrate your predictions with supply/demand

diagrams for the goods market an

d the loanable funds market.

a. An increase in total factor productivity (A up) with graph.

 
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