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Imagine there is a technological change which permanently makes all manufacturing workers more productive at their jobs. This means that firms will be able to produce goods at a lower cost and assume that workers will earn more in wages. Is this a shift in long-run or short-run aggregate supply or both? Is there a change in aggregate demand? Illustrate your answers withgraphs.

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Economics:

10th Edition
BOYES + 1 other
Publisher: Cengage Learning
ISBN: 9781285859460

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Chapter
Section
BuyFindarrow_forward

Economics:

10th Edition
BOYES + 1 other
Publisher: Cengage Learning
ISBN: 9781285859460
Chapter 8, Problem 20E
Textbook Problem
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Imagine there is a technological change which permanently makes all manufacturing workers more productive at their jobs. This means that firms will be able to produce goods at a lower cost and assume that workers will earn more in wages. Is this a shift in long-run or short-run aggregate supply or both? Is there a change in aggregate demand? Illustrate your answers withgraphs.

To determine

To write:

if therewill be a shift in both short run and long run aggregate supply curves with the change in aggregate demand.

Explanation of Solution

Technological improvement causes permeant upliftment in worker productivity and thereby lowers the cost of production, this implies that the potential output of the economy will rise as well. This will shift the long run aggregate supply curve to the right. The increase in the supply level will shift the short run aggregate supply curve...

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