Increases in the quality of inputs that do not affect the quantity of those inputs increase both long-run and short-run aggregate supply.

Question

Quizplus · Accepted Answer

When there is an increase in the quality of inputs, it results in an improvement in productivity and efficiency in production processes, which leads to an increase in output at any given level of inputs, thus increasing both long-run and short-run aggregate supply. This shift in the aggregate supply curve to the right is shown as an increase in potential GDP and a decrease in the price level.

Increases in the Quality of Inputs That Do Not Affect