An improvement in technology shifts the aggregate production function upward in Panel (b). Because labor is more productive, the demand for labor shifts to the right in Panel (a), and the natural level of employment increases to L 2. This will affect the demand for labor in Panel (a).

To that end, technology, like money, is a facilitator of the factors of production. The introduction of technology into a labor or capital process makes it more efficient. For example, the use of robots in manufacturing has the potential to improve productivity and output.

Invention leads to economic growth by increasing labor productivity—new technologies allow each worker to produce a greater amount of goods and services. This suggests that of late the benefits of invention have not been evenly distributed in the U.S.

However, as technology helps to increase the efficiency of the factors of production, it can also replace labor to reduce costs. For example, artificial intelligence and robotic machines are used in manufacturing boosting productivity, reducing costly errors from human beings, and ultimately reducing labor costs.

A contemporary example of technological unemployment is the displacement of retail cashiers by self-service tills. That technological change can cause short-term job losses is widely accepted. The view that it can lead to lasting increases in unemployment has long been controversial.

During times of runaway inflation, fighting inflation is important. When inflation is low, or nonexistent, and unemployment is high, combating unemployment would be prudent.

Inflation poses a “stealth” threat to investors because it chips away at real savings and investment returns. Most investors aim to increase their long-term purchasing power. In much the same way, rising inflation erodes the value of the principal on fixed income securities.

The Phillips Curve shows the various inflation rate-unemployment rate combinations that the economy can choose from. After policymakers choose a specific point on the Phillips Curve, they can use monetary and fiscal policy to get to that point.

A Keynesian Phillips Curve Tradeoff between Unemployment and Inflation. A Phillips curve illustrates a tradeoff between the unemployment rate and the inflation rate; if one is higher, the other must be lower. For example, point A illustrates an inflation rate of 5% and an unemployment rate of 4%.

The Phillips curve is an economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship. The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment.

Which of the following is implied by a long-run Phillips curve? Wages are sticky. There is no trade-off between unemployment and inflation. The long-run aggregate supply curve is upward-sloping.

The long-run Phillips curve is vertical at the natural rate of unemployment. Shifts of the long-run Phillips curve occur if there is a change in the natural rate of unemployment.