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Figure: Output Gap
-(Figure: Output Gap) Refer to Figure: Output Gap. If the economy is at Y₁ as a result of expansionary monetary policy and no further policy is implemented, in the long run nominal wages will _____ and shift the short-run aggregate supply curve to the _____, which will _____ real output.

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Figure: Output Gap

-(Figure: Output Gap) Refer to Figure: Output Gap. If the economy is at Y₁ as a result of expansionary monetary policy and no further policy is implemented, in the long run nominal wages will _____ and shift the short-run aggregate supply curve to the _____, which will _____ real output.

Quizplus · Accepted Answer

In the long run, expansionary monetary policy leads to higher nominal wages as the labor market adjusts to the higher demand for goods and services. This increase in nominal wages raises the cost of production, which shifts the short-run aggregate supply (SRAS) curve to the left, resulting in a decrease in real output as the economy moves back to its potential output level.

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