Refer to the following figure to answer the next questions. -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

Quizplus · Accepted Answer

Contractionary monetary policy reduces aggregate demand, causing a decrease in real GDP in the short run. This is depicted by the shift of the aggregate demand curve from AD1 to AD2, intersecting with the short-run aggregate supply curve at a lower level of output, Y2. Therefore, real GDP would decrease from Y₂ to Y₁.

Refer to the Following Figure to Answer the Next Questions