Explain why there is a belief that technology shocks are highly persistent. What happens if the shocks are not highly persistent?
Technology shocks are changes in technology that bring about changes in socio, economic or political outcomes. In economic theory, a technological shock is one which brings about a change in the production function. A technology shock changes the business cycle dynamics which makes them highly persistent as they bring about a change in the output. If technological shocks were not persistent, then individuals would not be encouraged to innovate as the gains from technology are not spread over a significant period of time. Since the possibility of a ttechnological positive shock is spread over a long time, entrepreneurs are encouraged to innovate and bring new technological process.
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