Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant, the development of a new, more productive technology will cause ________ in the unemployment rate in the long run and ________ in the inflation rate in the short run.
A) an increase; an increase
B) a decrease; a decrease
C) no change; a decrease
D) no change; no change

Question

Quizplus · Accepted Answer

The introduction of more productive technology increases the economy's potential output without initially affecting the natural rate of unemployment, leading to no change in the long-run unemployment rate. In the short run, it can lead to lower inflation as increased productivity can reduce costs.

Suppose the Economy Is Producing at the Natural Rate of Output