Consider the following news headline: "Information technology costs for Canadian firms continue to drop." Choose the statement below that best describes the likely macroeconomic effect.
A)The AD curve shifts to the right; the price level rises and real GDP rises.
B)The AD curve shifts to the left; the price level falls and real GDP falls.
C)The AS curve shifts to the left; the price level rises and real GDP falls.
D)The AS curve shifts to the right; the price level falls and real GDP rises.
E)The AD and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP rises.

Question

Quizplus · Accepted Answer

The news headline suggests that the cost of information technology for Canadian firms is decreasing, which will likely increase the productivity of these firms. This increase in productivity will shift the AS curve to the right, resulting in a decrease in the price level and an increase in real GDP. The AD curve is unlikely to shift since the news only affects a specific sector (information technology) and not the overall economy. Therefore, the best choice is D since it reflects an increase in real GDP and a decrease in the price level due to a rightward shift in the AS curve.

Consider the Following News Headline: "Information Technology Costs for Canadian