Figure 8-5 Panel (a) shows an economy's aggregate production function, Panel (b) shows the labor market and Panel (c) shows the economy's long-run aggregate supply curve.
-Refer to Figure 8-5. If a change in technology moves the aggregate production function in Panel (a) upwards, what happens to the economy's potential output?

Question

Figure 8-5  Panel (a) shows an economy's aggregate production function, Panel (b) shows the labor market and Panel (c) shows the economy's long-run aggregate supply curve.
-Refer to Figure 8-5. If a change in technology moves the aggregate production function in Panel (a) upwards, what happens to the economy's potential output?

Quizplus · Accepted Answer

An upward shift in the aggregate production function signifies an increase in potential output. This shift can only occur due to technological improvements that make the production process more efficient. As a result, the economy can produce more goods and services with the same amount of resources. This shift reflects an increase in potential output. Therefore, the correct answer is B.

Figure 8-5 Panel (A) Shows an Economy's Aggregate Production