On an aggregate supply and aggregate demand graph, if the short-run equilibrium is above 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 aggregate demand curve to the left.
B) Increase government spending to shift the aggregate demand curve to the right.
C) Increase taxes to shift the short-run aggregate supply curve to the right.
D) Decrease taxes to shift the short-run aggregate supply curve to the left.

Question

Quizplus · Accepted Answer

A decrease in government spending would reduce aggregate demand, helping to lower the price level and output toward full employment, correcting the overheating economy.

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