An increase in total factor productivity causes
A) real wages to rise.
B) labour supply to fall.
C) the output supply curve to shift left.
D) real interest rates to rise.
E) the production function to shift up.

Question

Quizplus · Accepted Answer

An increase in total factor productivity means that more output can be produced with the same amount of inputs. This leads to an upward shift in the production function, allowing firms to produce more output and increase profits. This does not necessarily lead to real wages rising or labour supply falling, and it would not cause the output supply curve to shift left. Real interest rates may rise if the increase in productivity leads to increased investment and demand for capital, but this is not a direct effect of the productivity change.

An Increase in Total Factor Productivity Causes