If the economy is experiencing inflation, then the most appropriate government policy would be to:
A) shift the aggregate demand curve by using a tax increase coupled with spending cuts.
B) shift the aggregate demand curve by using a tax increase coupled with more spending.
C) shift the aggregate demand curve by using a tax cut coupled with spending cuts.
D) shift the aggregate supply curve by using a tax cut coupled with more spending.

Question

Quizplus · Accepted Answer

To combat inflation, the government would aim to decrease aggregate demand, which can be achieved through contractionary fiscal policies such as increasing taxes and reducing government spending. This reduces consumers' disposable income and government spending, thereby decreasing overall demand in the economy, which can help in controlling inflation.

If the Economy Is Experiencing Inflation, Then the Most Appropriate