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

Question

Quizplus · Accepted Answer

To combat demand-pull inflation, the government should reduce aggregate demand. A tax increase and spending cuts will decrease disposable income and government expenditure, thus shifting the aggregate demand curve to the left.

If the Economy Is Experiencing Demand-Pull Inflation, Then the Appropriate