Question

In Wageland, all workers sign an annual wage contract each year on January 1. In late January, a new computer operating system is introduced that increases labor productivity dramatically. As Wageland moves from one short-run macroeconomic equilibrium to a new equilibrium:

the level of aggregate output will increase and the aggregate price level will rise.
the level of aggregate output will decrease and the aggregate price level will fall.
the level of aggregate output will decrease and the aggregate price level will rise.
the level of aggregate output will increase and the aggregate price level will fall.

Answer 1

the level of aggregate output will increase and the aggregate price level will fall.

Step-by-step explanation:

If new technology that increases productivity is introduced , output would increase and the quantity supplied would rise. Quantity supplied would outstrip quantity demanded and prices would fall.

On a graph, the aggregate supply curve would shift to the right.

The short run is defined as period when at least one factor of production is fixed.

Wageland is in the short run, so wages paid to labour is fixed therefore labour cannot demand higher prices.