Use the following to answer questions:
-(Figure: Fiscal Policy Options) Refer to Figure: Fiscal Policy Options. If the aggregate demand curve is AD', the most appropriate discretionary fiscal policy is to _____ government spending and _____ income tax rates.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question

Use the following to answer questions: 
-(Figure: Fiscal Policy Options) Refer to Figure: Fiscal Policy Options. If the aggregate demand curve is AD', the most appropriate discretionary fiscal policy is to _____ government spending and _____ income tax rates.
A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease

Quizplus · Accepted Answer

When the aggregate demand curve is AD', it indicates an economy that is underperforming or in a recession. The most appropriate fiscal policy in this scenario is to increase government spending to stimulate demand and decrease income tax rates to increase disposable income for consumers, thereby encouraging spending and investment.

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