According to the IS-MP-PC model, a technological innovation leading to a higher long-run level of output causes
A)higher inflation.
B)temporarily lower GDP.
C)no change in GDP.
D)higher GDP.

Question

Quizplus · Accepted Answer

In the IS-MP-PC model, a technological innovation that increases the long-run level of output shifts the long-run aggregate supply curve to the right. This results in an increase in potential GDP (Y*) and a decrease in the natural rate of unemployment (u*). As a result, there is an increase in real GDP in the long run without causing higher inflation. Therefore, the correct answer is D - a technological innovation leads to a higher GDP in the long run.

According to the IS-MP-PC Model, a Technological Innovation Leading to a Higher