Explain how an increase in technology, which increases the productivity of labor, will affect the labor market, the production function, and aggregate output. Provide graphs to illustrate
What will be an ideal response?
An increase in technology will shift the labor demand curve to the right, leading to an increase in the real wage and an increase in labor. The aggregate production function will shift upward because of the increase in technology, and there will also be a movement along the production function as the quantity of labor increases. Both of these factors will increase aggregate output.
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The self-correcting property of the economy means that output gaps are eventually eliminated by:
A. increasing or decreasing potential output. B. government policy. C. decreasing inflation only. D. increasing or decreasing inflation.
An increase in government purchases or a decrease in taxes, other things being equal, will tend to:
a. increase interest rates and decrease investment. b. increase interest rates and increase investment. c. decrease interest rates and decrease investment. d. decrease interest rates and increase investment.
According to the rational expectations view, _____
a. the economy will never deviate from the natural rate of unemployment for any anticipated policy b. the long-run inflation rate is equal to zero c. expected inflation is always less than actual inflation d. people use only past information to form expectations about future inflation rates e. announced money-growth policies are quite effective in reducing unemployment below its natural rate
When supply falls and demand remains the same, equilibrium price _______ and equilibrium quantity __________.
Fill in the blank(s) with the appropriate word(s).