Aggregate Demand & Aggregate Supply Practice Question

Use an aggregate demand and aggregate supply diagram to illustrate and explain how each of the following will affect the equilibrium price level and real GDP:

Technological improvements increase productivity

A rise in firm productivity is shown as a shift of the aggregate supply curve to the right. Not surprisingly, this causes a rise in Real GDP. Note that it also causes a fall in the price level.

Now you should be able to answer aggregate supply and aggregate demand questions on a test or exam. Good luck!