Consider the basic AD/AS model.Suppose that a rising percentage of high-school graduates are illiterate,resulting in a decrease in average labour productivity.This change will
A)shift the AD curve to the left.
B)shift the AD curve to the right.
C)shift the AS curve to the left.
D)shift the AS curve to the right.
E)cause a movement to the right along the AS curve.

Question

Quizplus · Accepted Answer

A decrease in average labour productivity implies a decrease in the level of output that can be produced with a given amount of inputs. This means that the AS curve shifts to the left, as the economy can now produce less at any given price level. There is no direct effect on the AD curve, as the decrease in productivity does not directly affect the demand for goods and services.

Consider the Basic AD/AS Model