Answer to Question #62606 in Finance for Hena

Question

Use AS-Ad model to explain how rapid innovation may lead to decline in the general price level?
Give two current examples to illustrate the point that innovation might lead to a fall in prices?

Answer 1

If there is a rapid innovation may, then the cost of production will decrease and the aggregate supply curve will shift to the right. This will lead to the increase in total output and the decline in the general price level. The examples of such innovation that might lead to a fall in prices are the production of shale gas or fast introduction of electric automobiles.