13. Technological progress: short, medium and long run

Question 1

Productivity, Output and Unemployment in the short run

Answer 1

An increase in productivity may increase ? decrease the demand for goods:

• implementation of major invention => increased consumption => higher profit- optimistic future => increased demand for goods => short run level of output increases
• increased international trade => increased competition => downsizing => increased uncertainty =>more saving => reduced consumption => demand for goods falls => short run level of output falls

Short-run : higher output growth leads to higher productivity growth; no relation to unemployment

Question 2

The natural rate of unemployment

Answer 2

An increase in productivity shifts both the wage and the price-setting curves by the same proportion and thus has no effect on the natural rate

Medium run: Higher productivity growth leads to lower unemployment