Use the following to answer questions .
Exhibit: AD-AS and the Inflation-Unemployment Cycle
-(Exhibit: AD-AS and the Inflation-Unemployment Cycle) At point 4, if policymakers are concerned about economic performance, they will most likely respond by
A) increasing government purchases and the money supply.
B) increasing taxes.
C) decreasing aggregate demand.
D) having the Fed sell bonds.

Question

Use the following to answer questions .
Exhibit: AD-AS and the Inflation-Unemployment Cycle 
-(Exhibit: AD-AS and the Inflation-Unemployment Cycle) At point 4, if policymakers are concerned about economic performance, they will most likely respond by
A) increasing government purchases and the money supply. 
B) increasing taxes. 
C) decreasing aggregate demand. 
D) having the Fed sell bonds.

Quizplus · Accepted Answer

At point 4, the economy is likely experiencing high unemployment and low inflation, indicating a recessionary gap. Policymakers would respond by increasing government purchases and the money supply to stimulate aggregate demand and boost economic activity.

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