Question

What impact would a change that shift's an economys production possibilities curve outward have on the long-run aggregate supply curve? How have improvements in computer technology affected production possibilities and th long-run aggregate supply curve? Explain.

Answer 1

The production possibility frontier states that if the economy operates on the frontier then an outward shift of the frontier can only occur through either the availability of more resources or through technological progress. So now if the production possibilities frontier shifts outward then this will mean that the long run aggregate supply curve will shift outwards and this will make the long run equilibrium at a higher output level.Computer technologies have revolutionized output in recent times and this represents an improvement in the technology and causes the aggregate supply curve to shift outwards and the production possibilities frontier will shift outwards too as more can now be produced with fewer resources.