Suppose an economy is producing an output above its full-employment level.To return the economy to long-run equilibrium, a(n) _____monetary policy can be used, which would cause the price level to ____.
A)expansionary; increase
B)expansionary; decline
C)contractionary; decline
D)contractionary; increase

Question

Quizplus · Accepted Answer

Contractionary monetary policy can be used to decrease the money supply and increase interest rates, leading to reduced spending and investment. This slowdown in economic activity can help lower the price level and bring the economy back to its full-employment level, thus restoring long-run equilibrium.

Suppose an Economy Is Producing an Output Above Its Full-Employment