When the macro equilibrium is above full employment,fiscal policy should be used to shift aggregate demand by the amount of

Question

Quizplus · Accepted Answer

When the macro equilibrium is above full employment, there is an excess of aggregate demand. Thus, fiscal policy should be used to shift aggregate demand by the amount of the AD excess, which allows for price level changes. This can be achieved through measures such as increasing government spending or decreasing taxes, which will increase aggregate demand and close the output gap. Therefore, the correct answer is choice C.

When the Macro Equilibrium Is Above Full Employment,fiscal Policy Should