When an economy is initially at full employment, a(n):

Question

Quizplus · Accepted Answer

When an economy is initially at full employment, a contractionary monetary policy can result in decreased real output, but only in the short run. This is because the policy is designed to decrease aggregate demand, which may lead to a reduction in output and employment in the short run. However, over the long run, prices and wages may adjust, which allows the economy to return to full employment. Therefore, while a contractionary monetary policy can have negative short-run effects on output, it is not expected to have a long-term impact on the economy's full employment level.

When an Economy Is Initially at Full Employment, A(n)