Answer to Question #80793 in Macroeconomics for AYANDA

Question

Which one of the following will shift aggregate supply to the right?

1) A fall in the general price level
2) An increase in aggregate spending
3) Improvements in productivity
4) A decrease in interest rate

Answer 1

Option 3 is correct
The right shift in the aggregate supply curve means an increase in the quantity of product supplied.
Productivity improvement tends to increase the level of output and decrease the cost of output of firms. Therefore, Firms will supply more output in the market. Decreasing cost of production will increase the profit margin of firms which is an encouragement for the producer to produce more and earn a greater profit. Hence, its improvements in productivity will shift the aggregate supply curve towards the right.