Initially, economy is operating below potential capacity and unemployment exceeds its natural rate. - If there is no change in policy, abnormally high unemployment and excess supply in the resource market will eventually reduce wages and other resource prices, which will lower costs and direct the economoy toward a full-employment equilibrium. - In addition, weak demand for investment goods will place downward pressure on interest rates, which will stimulate aggregate demand and also help to direct the economy back to full employment.