If the Fed does not change its monetary policy in an economy that is producing an output lower than the full- employment level of output, the short-run aggregate supply curve will eventually shift____, and the price level will_____.
A)left; increase
B)left; decline
C)right; decline
D)right; increase

Question

Quizplus · Accepted Answer

In an economy producing below its full-employment output level, without a change in monetary policy, over time, wages and input costs tend to decrease, leading to an increase in short-run aggregate supply (shift to the right). This increase in supply typically results in a lower price level.

If the Fed Does Not Change Its Monetary Policy in an Economy