If monetary policymakers overestimate the level of full employment, then prices will _____ in the short run and _____ in the long run.

Question

Quizplus · Accepted Answer

If monetary policymakers overestimate the level of full employment, they might implement policies that are too expansionary, leading to increased demand in the economy. This can cause prices to rise in the short run due to the higher demand. In the long run, as the economy adjusts and potential inflationary pressures become realized, prices continue to rise as the value of money decreases.

If Monetary Policymakers Overestimate the Level of Full Employment, Then