Final answer:
The correct option is (b) The inflation rate falls, and the economic growth rate rises when the rate of technology progress increases, leading to improved productivity and faster economic growth without necessarily causing higher inflation.
Step-by-step explanation:
If the rate of technology progress rises, resulting in faster long run economic growth, the correct option is (b) The inflation rate falls, and the economic growth rate rises. This is because technological progress can lead to increased productivity and supply-side improvements, which can boost economic growth without necessarily increasing the inflation rate.
In the context of the neoclassical model, a rise in technological progress would shift the long-run aggregate supply (LRAS) curve to the right, thus allowing for more output at any given price level. This increased productivity and economic growth do not lead to higher inflation in the long run because the LRAS curve is vertical; increases in aggregate demand would only cause short-term increases in the price level, but eventually, the economy will achieve growth without changing the inflation rate or the natural rate of unemployment.