Suppose that an economy is producing an output greater than the full-employment level of output. Policymakers in the economy are worried that this may eventually lead to high rates of inflation and want to bring the economy back to its full employment level.
a. Suggest one policy to bring the economy back to its full employment level.
b. Show the impact of the policy graphically using the aggregate demand and aggregate supply graph, clearly marking the equilibrium points before and after the policy action.

Question

Quizplus · Accepted Answer

The Answer of Suppose that an economy is producing an output greater than the full-employment level of output. Policymakers in the economy are worried that this may eventually lead to high rates of inflation and want to bring the economy back to its full employment level.
a. Suggest one policy to bring the economy back to its full employment level.
b. Show the impact of the policy graphically using the aggregate demand and aggregate supply graph, clearly marking the equilibrium points before and after the policy action.

Suppose That an Economy Is Producing an Output Greater Than