The economy is closed and at full employment. There is an innovation, the blitzaroo. The innovation increases productivity across the board. (An increase in A.) a. Assuming the Fed is controlling money, not interest rates, construct, and explain the original IS, LM and FE lines, before the innovation. b. Graph and explain the effect of the innovation on the labor market. c. Graph the new IS, LM, and FE lines.d. Assuming the Fed “accommodates” the changes in the real sector (changes the amount of money so that inflation is unchanged). Graph the final IS, LM, and FE lines,

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A:

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