Problem
A permanent TFP shock: Now consider a TFP shock that is permanent. For example, suppose the discovery and application of a new technology makes firms more productive. Consider the labor market block of a standard DSGE model with no sticky prices or wages.
(a) What happens to the labor demand schedule?
(b) What happens to the labor supply schedule?
(c) Why is the net effect on employment ambiguous? What happens to the real wage?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.