According to the theory of new classical economics, if productivity decreases, the aggregate supply curve shifts _____ and the price level rises, while aggregate output_____.
A)right; increases
B)left; remains constant
C)right; decreases
D)left; decreases

Question

Quizplus · Accepted Answer

According to the theory of new classical economics, if productivity decreases, the aggregate supply curve shifts left and the price level rises, while aggregate output decreases. This is because a decrease in productivity leads to higher costs of production, which makes output more expensive and reduces the quantity supplied at every price level. Therefore, the economy moves up along a steeper aggregate supply curve, resulting in a higher price level and lower output.

According to the Theory of New Classical Economics, If Productivity