The correct answer is c. shifts outward. An increase in productivity generally leads to an outward shift of the aggregate supply curve. Productivity refers to the efficiency and output per unit of input in an economy.
When productivity increases, firms can produce more output with the same amount of inputs or produce the same output with fewer inputs. This results in an expansion of the economy's productive capacity.
As a result of increased productivity, firms can supply more goods and services at each price level. This causes the aggregate supply curve to shift to the right, indicating an increase in the quantity of goods and services that can be supplied at any given price level.
Therefore, option c. shifts outward is the correct answer, reflecting the typical movement of the aggregate supply curve following an increase in productivity.