Question

Using an aggregate supply and aggregate demand model illustrate and explain the effect of a significant increase in technological innovation.

Answer 1

Aggregate demand curve and aggregate supply curve are represented on x and y axis by real GDP and price level respectively

Aggregate demand curve is inversely sloped in nature

Here supply curve is upward sloping in nature but in long run it becomes vertical due to no change in the real GDP

When there is technological advancement then it will cause less input requirement for the production of the same output

For example it will required less amount of labour, capital, land, entrepreneurship and this will cause the shift of the aggregate supply curve to the rightwards

Aggregate demand curve will not be affected which is shown below