- Refer to the above diagram, in which Q_f is the full-employment output. A contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at:

Question

Quizplus · Accepted Answer

A contractionary fiscal policy is appropriate when the economy is experiencing an inflationary gap, which occurs when aggregate demand exceeds full-employment output (Qf). If the aggregate demand curve is at AD3, it is beyond Qf, indicating an inflationary gap.

- Refer to the Above Diagram, in Which Qf

- Refer to the Above Diagram, in Which Q_f