An AI system will be available in a few years that increases productivity in producing goods. Using an intertemporal model, this would graphically show that output increases while employment decreases with real wages unchanged. It can also be inferred that the real interest rate falls as investment rises and consumption increases.

1. Suppose that companies announce a new Artifcial intelligence (AI) in the production of goods,
which will be fully operational and available in a few years. This can be modelled as z unchanged,
z' increases. Use the real intertemporal model to show graphically what happens to output,
employment, real wages and the real interest rate. Also, infer what happens to investment and
consumption.