When inflation constitutes a major economic problem,government policy may attempt to
A) shift the aggregate demand curve to the left.
B) shift the aggregate supply curve to the left.
C) encourage and augment spending.
D) raise the equilibrium price level.
E) raise the minimum wage to reduce the effective price level.

Question

Quizplus · Accepted Answer

When inflation is a major economic problem, government policy may attempt to shift the aggregate demand curve to the left. By doing so, they can reduce the overall level of demand in the economy, which can lead to a decrease in prices and inflation. This can be achieved through different policies such as reducing government spending, increasing taxes, or tightening monetary policy. Shifting the aggregate supply curve to the left or raising the equilibrium price level would not be effective solutions to combat inflation. Encouraging spending or raising the minimum wage would only exacerbate the inflation problem.

When Inflation Constitutes a Major Economic Problem,government Policy May Attempt