Refer to the graph. Assume that the economy is in initial equilibrium where AD $A D _ { 1 }$ intersects A
$A S _ { L R 1 }$ If
The economy experiences a change in technology that increases productivity and resources, then
Real-business-cycle theory would suggest that this macroeconomic instability would eventually
Produce a new equilibrium at point
A) B.
B) C.
C) D.
D) E.

Question

Refer to the graph. Assume that the economy is in initial equilibrium where AD $A D _ { 1 }$ intersects A
$A S _ { L R 1 }$ If
The economy experiences a change in technology that increases productivity and resources, then
Real-business-cycle theory would suggest that this macroeconomic instability would eventually
Produce a new equilibrium at point
A) B. 
B) C. 
C) D. 
D) E.

Quizplus · Accepted Answer

According to real-business-cycle theory, a positive productivity shock would shift the AS curve to the right, resulting in a new equilibrium at a higher level of output and a lower price level. Point B represents this new equilibrium. Choice C, D, and E are incorrect because they do not reflect the impact of a positive technology shock on the AS and AD curves and the resulting equilibrium.

Refer to the Graph AD1A D _ { 1 }AD1​ Intersects A

Refer to the Graph $A D _ { 1 }$ Intersects A