An increase in labor productivity shifts the
A) AD curve rightward.
B) AD curve leftward.
C) short-run aggregate supply (SRAS)curve leftward.
D) SRAS curve rightward.
E) none of the above

Question

Quizplus · Accepted Answer

An increase in labor productivity means that the same amount of labor can produce more output, which leads to a decrease in production costs and an increase in profitability for businesses. As a result, the SRAS curve shifts rightward, indicating that firms are willing and able to produce a higher level of output at any given price level. This leads to a decrease in the equilibrium price level and an increase in real GDP in the short run. Therefore, the correct answer is D, as none of the other options accurately describe the effect of an increase in labor productivity on the economy.

An Increase in Labor Productivity Shifts the