Question

Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant, the development of a new, more productive technology will cause ________ in the unemployment rate and ________ in the inflation in the long run.A) an increase; an increaseB) a decrease; a decreaseC) a decrease; an increaseD) no change; no change

Answer 1

The correct answer is option D.

Step-by-step explanation:

The natural rate of output is the output level where all the resources are efficiently used. It also called a long-run aggregate supply or full employment level.

An economy is producing at the natural rate of output, all other things are constant.

There is a new technological development that will increase productivity. This technological change will cause the unemployment rate and inflation rate to decrease in the short run.

Though in the long run there will be no change, as the economy will operate at the natural rate of employment in the long run. Since all the resources are efficiently utilized production and employment cannot be increased.