Productivity relates a nation's level of real output to the quantity of input used to produce that output. An increase in productivity means the economy can obtain more real output from its limited resources. Inflation is greatly affected by the increase or decrease in productivity. Productivity is determined by technological progress, the quantity of capital goods available to workers, the quality of labor itself, and the efficiency with which inputs are allocated, combined, and managed.
Productivity is a measure of average real output.
In the production possibilities model economic growth shifts the production possibilities curve outward because of improvement in supply factors that increase real output by increasing the labor inputs and by increasing the productivity of labor. However whether the economy operates on the frontier of the curve depends on demand factors affecting the full employment of resources efficiency factors affecting full production. Technology is one of the main factors that affect the increase in productivity which causes a rightward shift in aggregate supply in the along run. The increase in technology will not accelerate inflation, because with the increase in technology comes a decrease in cost of production. Decrease the amount of raw materials used.