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 shifts the aggregate demand curve leftward, leading to a decrease in both output and price level. The economy moves from point Y1 to point Y₂, which represents a decrease in real GDP from its full-employment level (Y1) to a level below it (Y₂).

Refer to the Following Figure to Answer the Next