On an aggregate supply and aggregate demand graph, if the short-run equilibrium is below full employment, which of the following fiscal policies could be used to move the economy to full employment?
A) Decrease government spending to shift the short-run aggregate supply curve to the right.
B) Increase government spending to shift the short-run aggregate supply curve to the left.
C) Increase taxes to shift the aggregate demand curve to the left.
D) Decrease taxes to shift the aggregate demand curve to the right.

Question

Quizplus · Accepted Answer

To move the economy to full employment when the short-run equilibrium is below full employment, a policy that increases aggregate demand is needed. Decreasing taxes increases consumers' disposable income, leading to higher spending and shifting the aggregate demand curve to the right, which can help move the economy towards full employment.

On an Aggregate Supply and Aggregate Demand Graph, If the Short-Run