If an expansionary policy pushes output beyond the full-employment level of GDP

Question

Quizplus · Accepted Answer

If output is pushed beyond the full-employment level of GDP, this means that resources in the economy are being utilized beyond their maximum capacity. As a result, production costs will increase because firms will have to start competing for scarce resources such as labor and raw materials. This will cause the short-run aggregate supply curve to shift to the left, leading to higher inflation and potentially higher unemployment in the long run.

If an Expansionary Policy Pushes Output Beyond the Full-Employment Level