Question

In the 1990s, the technology revolution caused the wide-spread use of information technology in all areas of production, thus improving productivity and lowering costs; illustrate the effect of this by shifting the aggregate supply (AS) curve in the appropriate direction.

Answer 1

Answer: The aggregate supply curve would shift rightward.

Explanation: When there is a new technological breakthrough that enables a firm to produce at a much lower cost, the aggregate supply curve shifts to the right. During the 1960s Green Revolution when there was improved seeding on basic crops like wheat and rice, by early 1990s, rice and wheat in low-income countries had grown considerably significantly using the Green Revolution seeds; same applies to the harvest that doubled per acre. A technological breakthrough that improves production and reduces production cost would increase aggregate supply - shifts the supply curve to the right - so that more quantity would be produced at any given price.