An increase in productivity will:
A) Increase aggregate demand
B) Increase aggregate supply
C) Increase aggregate supply and aggregate demand
D) Decrease aggregate supply and aggregate demand

Question

Quizplus · Accepted Answer

An increase in productivity means that more goods and services can be produced with the same amount of resources. This leads to a shift in the aggregate supply (AS) curve to the right, indicating that more output can be produced at every price level. However, it does not directly impact aggregate demand (AD), which is influenced by factors such as consumer spending, investment, and government policies. Therefore, an increase in productivity will only increase aggregate supply, not both.

An Increase in Productivity Will