If an economy is producing at a level beyond full employment, using contractionary fiscal policy to reduce aggregate demand means a tradeoff between _____ price levels and _____ output.

Question

Quizplus · Accepted Answer

Contractionary fiscal policy, aimed at reducing aggregate demand, typically results in lower price levels due to decreased demand. However, it also leads to lower output as the economy cools down to prevent overheating, thus aligning with choice A.

If an Economy Is Producing at a Level Beyond Full