pomsky
Active Member
Re: 2015 HSC Economics Marathon
(just changed a few words of aanthnnyyy's post. Hope he doesn't mind haha)
Unless you say that more efficient productivity --> lower price level --> lower cost of production --> more production --> increase in GDP (as GDP measures the total value of G +S produced in an economy).
Productivity improvements in the economy through microeconomic reforms will shift the supply curve to the right as more output is produced per unit of input. With firms producing more efficiently, consumption will rise, fostering an increase in the overall market size. As a result, GDP will increase as well as firms attract greater investment.
/4? Should I include examples such as factor/product market improvements
But won't they link sooner or later? ie: as productivity increases, aggregate supply will shift to the right as more output is produced per unit of input. With firms producing more efficiently, cost of production will fall, leading to a fall in the price level. As prices fall, the demand for products will rise, leading to an increase in consumption and an increase in the overall market size. As a result, GDP will increase.These last couple of sentences seem very confused. You've suggested productivity improvements will shift the Aggregate Supply Curve, but then you go on to suggest that economic growth occurs here based on increases in consumption and investment, ie a shift in the Aggregate Demand Curve.
(just changed a few words of aanthnnyyy's post. Hope he doesn't mind haha)
Unless you say that more efficient productivity --> lower price level --> lower cost of production --> more production --> increase in GDP (as GDP measures the total value of G +S produced in an economy).