If the productivity of labor were suddenly to increase,we would expect to observe
A)a short-run rise in output and fall in prices.
B)an increase in the natural level of real GDP.
C)a downward shift in the aggregate supply curve.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

An increase in labor productivity means that workers can produce more goods and services for each hour of work. This would lead to a short-run rise in output (as more goods and services are produced) and a fall in prices (as the cost of producing each unit of output decreases). Over time, this increase in productivity would also raise the natural level of real GDP, as the economy can sustain a higher level of output without causing inflation. The aggregate supply curve would shift downward (or to the right in the context of the aggregate demand-aggregate supply model), indicating that a greater quantity of goods and services can be supplied at every price level.

If the Productivity of Labor Were Suddenly to Increase,we Would