Above full employment level, an expansionary monetary policy will lead to a

When an economy is operating above full employment level, it means that all available resources are already being used, and there is no spare capacity to produce more goods and services. In such a scenario, implementing an expansionary monetary policy, such as reducing interest rates or increasing money supply, can lead to a rise in the inflation rate. This is because, with no spare capacity, any increase in demand will lead to higher prices instead of an increase in output. As people have more money to spend due to the lower interest rates or increased money supply, they will compete for the limited goods and services available, driving up prices. This is known as demand-pull inflation, where increased demand leads to higher prices. Therefore, an expansionary monetary policy in an economy operating above full employment level would lead to a rise in the inflation rate.