Final answer:
An increase in productivity will increase aggregate supply by allowing businesses to produce more efficiently and at a lower cost, expanding the economy's capacity to supply goods and services. The correct answer is b. increase aggregate supply.
Step-by-step explanation:
An increase in productivity will increase aggregate supply. Productivity advancements mean that businesses can produce more goods and services more efficiently. This increased production at a lower cost expands the economy's overall ability to supply goods and services, which is represented by a rightward shift in the aggregate supply curve.
Higher productivity does not directly affect aggregate demand, which is comprised of consumption, investment, government spending, and net exports.
However, it can indirectly influence these components over time. For instance, improved productivity can lead to higher incomes and potentially increase consumption and investment, thereby affecting aggregate demand in the long run. But the immediate effect of an increase in productivity is on the aggregate supply.