A theoretical and graphical description of the steady state equilibrium and what happens to the total value of the stock market when there is change in the steady state from the original steady state to the new steady state.

From 2002 through 2005, residential investment boomed in the United States as financial innovations seemingly made it possible to better match borrowers and lenders. (It subsequentlly became apparent that many of the loans made toward the end of this period were on unduly optimise assumtions about the productivity of the underlying investments.)

Suddenly, current and expected future values pof I are belived to havr intrested. How does thee Steady state tou depicted in 2(a) shift? How does the economy get from the original steady state to the new steady state? (That is, how do consumption, output, the capital stock. And the real intrest rate move, over time, in response to the new information?). Illustrate what happens to the total value of the stock market as the economy moves from the original steady state to the new steady state?