Explain how an increase in technology, which increases the productivit

Explain how an increase in technology, which increases the productivity of labor, will affect the labor market, the production function, and aggregate output. Provide graphs to illustrate.

What will be an ideal response?

ANSWER

An increase in technology will shift the labor demand curve to the right, leading to an increase in the real wage and an increase in labor. The aggregate production function will shift upward because of the increase in technology, and there will also be a movement along the production function as the quantity of labor increases. Both of these factors will increase aggregate output.