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Figure: Output Gap
-(Figure: Output Gap) Refer to Figure: Output Gap. If the economy is at Y₂ because of contractionary monetary policy and no further policy is implemented, in the long run nominal wages will _____ and shift the short-run aggregate supply curve to the _____, which will _____ real output.

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Figure: Output Gap

-(Figure: Output Gap) Refer to Figure: Output Gap. If the economy is at Y₂ because of contractionary monetary policy and no further policy is implemented, in the long run nominal wages will _____ and shift the short-run aggregate supply curve to the _____, which will _____ real output.

Quizplus · Accepted Answer

In the long run, nominal wages will decrease due to lower demand for labor, shifting the short-run aggregate supply curve to the right, which will increase real output back to potential output.

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