Question

What’s the effect on productivity on the short run (draw a graph)

What’s the effect on productivity on the short run (draw a graph)

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Answer #1

A higher level of productivity shifts the Short Run Aggregate Supply curve to the right because with improved productivity, firms can produce a greater quantity of output at every price level.. Similarly, opposite effect is observed in case productivity declines. In the diagram below, for growth in productivity, there has been right shift of SRAS curve as shown. This results in a greater real GDP and downward pressure on the price level if aggregate demand remains unchanged. Similarly, for decline, there has been a left shift .

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