A beneficial supply shock such as a breakthrough in technology _____
A) lowers the price level and increases output.
B) lowers the price level and decreases output.
C) raises the price level and increases output.
D) raises the price level and decreases output.
E) has no effect on either the long-run or the short-run aggregate supply curves.

Question

Quizplus · Accepted Answer

A beneficial supply shock such as a breakthrough in technology increases productivity and allows firms to produce more output at a lower cost. This shifts the short-run aggregate supply curve to the right, leading to a decrease in the price level (inflation) and an increase in output. The long-run aggregate supply curve also shifts to the right, indicating that the potential level of output in the economy has increased.

A Beneficial Supply Shock Such as a Breakthrough in Technology