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Macroeconomics

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Moderate

Expected Future Productivity Shock Effects

MACRO-J@EORS

Suppose there is a rise in expected productivity in all future periods, but no effect on productivity in the current period. What are the effects on the interest rate and the amount of funds that change hands? Ignore any automatic spending and revenue effects due to government tax and spending policies. Also assume a closed economy.

The interest rate

and the quantity of the flow of funds through the market

.