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

As the costs of information technology drop, firms will have lower costs of production, which will cause the AS curve to shift to the right. This will cause a decrease in prices (price level falls) and an increase in real GDP (real GDP rises). The AD curve is not affected by this specific news headline.

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