Refer to the following figure to answer the questions that follow.

-According to the figure,if the economy started at full employment output,contractionary monetary policy would cause real gross domestic product (GDP)to ________ in the short run.
A) increase from Y1 to Y2
B) increase from Y1 to Y3
C) decrease from Y2 to Y1
D) decrease from Y3 to Y2
E) increase from Y2 to Y3

Question

Refer to the following figure to answer the questions that follow.
 
-According to the figure,if the economy started at full employment output,contractionary monetary policy would cause real gross domestic product (GDP)to ________ in the short run.
A) increase from Y1 to Y2 
B) increase from Y1 to Y3 
C) decrease from Y2 to Y1 
D) decrease from Y3 to Y2 
E) increase from Y2 to Y3

Quizplus · Accepted Answer

Contractionary monetary policy reduces the money supply and increases interest rates, thereby reducing aggregate demand. As a result, real GDP would decrease from Y2 to Y1, moving the economy away from full employment output.

Refer to the Following Figure to Answer the Questions That