Consider the impact of an increase in labor-enhancing technology withi

Consider the impact of an increase in labor-enhancing technology within the classical model. Provide graphs to illustrate what happens to real wages, labor, output, and the price level.

What will be an ideal response?

ANSWER

An increase in labor-enhancing technology will shift the production function upwards, which will increase labor demand and increase the real wage. This will increase the aggregate supply curve, which increases output and reduces the price level.