Consider an Economy in Long- Run Equilibrium Where Factor Supply

Multiple Choice

Consider an economy in long- run equilibrium where factor supply is 2.5 million units, the factor utilization rate is 0.85 and a simple measure of productivity (GDP per factor employed) is $200. Now suppose that, other things being equal, the productivity measure rises to $210. The effect of this change will be

A) an increase in this economy's potential output, and an adjustment back to its original level after factor prices have adjusted.
B) a rightward shift of the aggregate supply curve, and an adjustment back to Y*.
C) an inflationary gap caused by simultaneous rightward shifts of the aggregate demand and aggregate supply curves.
D) an increase in this economy's potential output in the long run.
E) a rightward shift of the aggregate demand curve due to the increased wealth of the private sector.