How does improved technology affect the aggregate supply?

• A. It decreases production capabilities
• B. It has no impact on supply
• C. It increases production capabilities
• D. It only affects short-run supply

Answer: (C)

Improved technology positively influences aggregate supply by increasing production capabilities. When technology advancements occur, firms are usually able to produce goods more efficiently. This could manifest in various ways, such as reducing production costs, enhancing productivity, or introducing new methods that allow for greater output with the same input.

As firms become more efficient, they are capable of supplying a higher quantity of goods and services at every price level. This outward shift in the short-run aggregate supply curve reflects an increase in total production capacity within the economy. Such improvements typically lead to lower prices for consumers over time since the cost savings from enhanced efficiency can also translate into lower prices for goods.

While some might think that improved technology could only have a short-term effect or would not impact supply at all, the truth is that sustained technological advancements build a stronger foundation for long-term growth in the economy's productive potential.