What is the effect of higher productivity on aggregate supply?

• A. It raises production costs
• B. It has no effect on aggregate supply
• C. It shifts the aggregate supply curve to the left
• D. It shifts the aggregate supply curve to the right

Answer: (D)

Higher productivity positively impacts aggregate supply by increasing the efficiency of production processes. When firms are more productive, they can produce more output using the same amount of inputs. This increase in output capacity reduces the per-unit cost of production, allowing firms to offer more goods and services at lower prices.

As a result, the aggregate supply curve shifts to the right, indicating an increase in the total quantity of goods and services supplied in the economy at every price level. This shift reflects the ability of the economy to produce more, supporting overall economic growth and stability. In contrast, the other options do not capture the relationship between productivity and aggregate supply as accurately. Higher productivity does not raise production costs, has a significant effect on aggregate supply, and does not shift the supply curve to the left.