What is a likely effect of increased labor productivity?

Increased labor productivity refers to the amount of goods and services that a worker can produce in a given amount of time. When labor productivity rises, it typically means that workers are able to produce more output without a corresponding increase in costs. This increase in productivity leads to various positive effects in the economy.

One significant effect is that it can lead to an increase in aggregate supply. As productivity improves, businesses can produce more goods and services at lower costs, making it easier to meet consumer demand. When aggregate supply increases, the economy can grow, creating conditions for more stable prices and potentially lower inflation rates. Additionally, increased productivity may encourage businesses to expand production, which can lead to further investments, innovation, and even job creation in the long run.

While the other options present possible outcomes of changes in productivity or economic conditions, the direct relationship between increased labor productivity and an increase in aggregate supply is the most immediate and foundational effect recognized in macroeconomic theory. An increase in productivity not only has implications for the supply curve but is also a critical driver of economic growth over time.