The equilibrium effects of a temporary increase in total factor productivity include
A)only a decrease in the real interest rate.
B)an increase in the real wage and an increase in the real interest rate.
C)a decrease in the real wage and a decrease in the real interest rate.
D)an increase in the real wage and a decrease in the real interest rate.
E)a decrease in the real wage and an increase in the real interest rate.

Question

Quizplus · Accepted Answer

A temporary increase in total factor productivity leads to an increase in output and a decrease in prices. This shift in the supply curve leads to an increase in the equilibrium real wage and a decrease in the equilibrium real interest rate, as firms demand more labor and investment. Therefore, the correct answer is D: an increase in the real wage and a decrease in the real interest rate.

The Equilibrium Effects of a Temporary Increase in Total Factor