A favourable supply shock would
A)shift the production function up and decrease marginal products at every level of employment.
B)shift the production function down and decrease marginal products at every level of employment.
C)shift the production function down and increase marginal products at every level of employment.
D)shift the production function up and increase marginal products at every level of employment.

Question

Quizplus · Accepted Answer

A favourable supply shock refers to a positive shift in the economy's production function, which means that output can be generated with fewer inputs, such as labour and capital. This would result in an increase in the marginal products of labour and capital at every level of employment, as there is more output produced for a given input. Therefore, the correct answer is D, which states that the production function shifts up and marginal products increase at every level of employment.

A Favourable Supply Shock Would