When future total factor productivity is expected to increase
A)current labour demand increases and output supply increases.
B)investment demand decreases and output demand decreases.
C)investment demand increases and output supply decreases.
D)investment demand increases and output demand increases.
E)investment demand increases and output supply increases.

Question

Quizplus · Accepted Answer

When future total factor productivity is expected to increase, firms anticipate higher future profits and thus are more likely to invest now to capitalize on those future opportunities. This increases current investment demand. Additionally, the expectation of higher productivity leads to an increase in current output demand as firms prepare to meet the anticipated future demand, thus both investment demand and output demand increase.

When Future Total Factor Productivity Is Expected to Increase