When drawn against the real interest rate, the output demand curve shifts to the right when
A) current total factor productivity z increases.
B) current total factor productivity z decreases.
C) future total factor productivity z' increases.
D) future total factor productivity z' decreases.
E) current and future total factor productivity z' decreases.

Question

Quizplus · Accepted Answer

When future total factor productivity increases, the output demand curve shifts to the right. This is because higher future productivity expectations increase the marginal product of capital, which leads to higher investment demand and greater output in the long run. Thus, the demand for output increases, shifting the output demand curve to the right.

When Drawn Against the Real Interest Rate, the Output Demand