In the new Keynesian model,an increase in productivity will cause ________.
A)a leftward shift in short-run and long-run aggregate supply
B)a rightward shift in short-run and long-run aggregate supply
C)a leftward shift in short-run aggregate supply and rightward shift in long-run aggregate supply
D)a rightward shift in short-run aggregate supply and a leftward shift in long-run aggregate supply

Question

Quizplus · Accepted Answer

An increase in productivity will shift the long-run aggregate supply curve to the right because it leads to a permanent increase in the economy's potential output. In the short run, the increase in productivity will also shift the aggregate supply curve to the right, but to a lesser extent than in the long run because some prices and wages may be sticky and slow to adjust in the short run. Therefore, the correct answer is B, which indicates a rightward shift in both short-run and long-run aggregate supply.

In the New Keynesian Model,an Increase in Productivity Will Cause