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Use the dynamic AD-AS model to explain circumstances by which productivity and technological changes can lead...

Use the dynamic AD-AS model to explain circumstances by which productivity and technological changes can lead to an increase in unemployment. Discuss what happens to the price level depending on the assumptions you make.(please explain in detail)

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Expert Solution

Tecchnological and productivity improvement will help producers in producing more of the good. It will raise unemployment only when technological advancement reduce manpower needed to produce a product. It will reduce the price of product duw to two reasons.

  • More supply of goods will exceed the demand of equilibrium units of good which will result in surplus of goods and induce producers to reduce the price to avoid inventories.
  • Rise in unemployment will reduce the money people have with them which reduce their willingness to pay for goods.

Rahul Sunny answered 2 years ago
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