In macroeconomics, other things being equal, how does an improvement in overall productivity affect the aggregate supply curve of an economy?

Introduction / Context:
Aggregate supply and aggregate demand are central tools in macroeconomic analysis. Questions often ask you to predict what happens to these curves when fundamental factors such as productivity change. Productivity measures how efficiently an economy can convert inputs like labour and capital into output. Understanding that higher productivity allows more output at the same cost is crucial for explaining inflation, growth and employment trends in basic macro models.

Given Data / Assumptions:

• The question refers to a general improvement in productivity across the economy.
• We hold "other things equal", so wages, technology and demand conditions do not simultaneously shift for the purpose of the question.
• We use a standard aggregate demand and aggregate supply framework.
• We assume a typical upward sloping short run aggregate supply curve in price level output space.

Concept / Approach:
Aggregate supply describes the total quantity of goods and services that firms are willing to produce at different overall price levels. Productivity improvements mean that each unit of input produces more output. This reduces unit costs and makes it profitable for firms to supply more at any given price level. Graphically, a reduction in production costs and an increase in capacity shifts the aggregate supply curve to the right. It does not primarily move the aggregate demand curve, which reflects spending decisions by households, firms, government and foreign buyers.

Step-by-Step Solution:
Step 1: Recall that the aggregate demand curve represents total planned spending, while the aggregate supply curve represents total planned output.Step 2: An improvement in productivity means that the same quantity of inputs can produce more output, or the same output can be produced at lower cost.Step 3: Lower costs encourage firms to expand output at each price level, because profit margins improve.Step 4: In the aggregate supply diagram, more output supplied at every possible price level corresponds to a rightward shift of the aggregate supply curve.Step 5: A rightward shift in aggregate supply, with aggregate demand held constant, tends to reduce the equilibrium price level and increase real output.Step 6: Therefore the correct statement is that productivity improvement shifts the aggregate supply curve to the right.

Verification / Alternative check:
Think of a simple example such as the introduction of a more efficient technology in manufacturing. If each worker can now produce more goods per hour, firms are able to supply more units without raising prices. They may even cut prices slightly to expand sales. At the macro level, this pattern replicates across industries and results in a rightward shift of aggregate supply. Because the question specifies that other factors are held constant, the impact is clearly on the supply side rather than on aggregate demand.

Why Other Options Are Wrong:
Option a, "shift the aggregate demand curve to the left", is incorrect because productivity affects production capacity and costs, not directly the willingness of households or firms to spend. Option c, "increase the equilibrium price level", describes the effect of a negative supply shock or strong demand increase, not a positive productivity shock. Option d, "shift the aggregate supply curve to the left", would correspond to higher costs or reduced capacity, for example due to resource shortages or natural disasters, which is the opposite of what improved productivity does.

Common Pitfalls:
One common confusion is to treat any positive economic news as a rightward shift in aggregate demand, even when the change clearly relates to production technology. Another pitfall is to think only in terms of price effects and forget about quantities. Students sometimes associate productivity gains with higher prices because they think of higher wages, but the primary theoretical result in the model is lower costs and increased supply. Keeping a clear distinction between demand side shocks (changes in spending) and supply side shocks (changes in costs or capacity) helps avoid these mistakes.

Final Answer:
Other things equal, an improvement in productivity will shift the aggregate supply curve to the right in the aggregate demand aggregate supply framework.