When there is a temporary increase in total factor productivity,
A) labour demand increases and output supply decreases.
B) labour demand decreases and output demand increases.
C) labour demand increases and output demand increases.
D) labour demand decreases and output supply decreases.
E) labour demand increases and output supply increases.

Question

Quizplus · Accepted Answer

A temporary increase in total factor productivity makes labor more productive, leading to an increase in labor demand as firms seek to produce more. This also results in an increase in output supply as the economy can produce more goods and services with the same amount of inputs.

When There Is a Temporary Increase in Total Factor Productivity