When the economy is initially at full employment:
A)contractionary monetary policy can result in increased real output, but only in the short run.
B)contractionary monetary policy can result in increased real output in both the short run and long run.
C)contractionary monetary policy can result in decreased real output, but only in the short run.
D)contractionary monetary policy can result in decreased real output in both the short run and long run.

Question

When the economy is initially at full employment:
A)​contractionary monetary policy can result in increased real output, but only in the short run.
B)​contractionary monetary policy can result in increased real output in both the short run and long run.
C)​contractionary monetary policy can result in decreased real output, but only in the short run.
D)​contractionary monetary policy can result in decreased real output in both the short run and long run.

Quizplus · Accepted Answer

When the economy is initially at full employment, contractionary monetary policy can result in decreased real output in the short run due to a decrease in aggregate demand. In the long run, the economy may return to full employment through adjustments in prices and wages, but in the short run, there may be a temporary decrease in real output.

When the Economy Is Initially at Full Employment