Suppose an economy is operating with a contractionary gap.In this case, policymakers would seek to move the economy

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When an economy is operating with a contractionary gap, it means the economy is producing below its potential output and there is a high level of unemployment. Policymakers would seek to move the economy up the Phillips curve by implementing expansionary fiscal or monetary policies that would increase aggregate demand and stimulate economic growth. As the economy grows, firms will be forced to hire more workers, which will reduce unemployment and move the economy closer to the natural rate of unemployment. The natural rate of unemployment is the rate of unemployment that arises from normal labor market turnover, when workers have to search for new jobs or new firms have to search for new workers, and it is not affected by short-term changes in aggregate demand.

Suppose an Economy Is Operating with a Contractionary Gap