The government can curb excessive aggregate demand (inflation) by:

Question

Quizplus · Accepted Answer

None of the above options would effectively curb excessive aggregate demand and instead may even exacerbate it. Decreasing taxes on consumers may increase their disposable income and therefore increase their demand for goods and services, increasing aggregate demand. Increasing spending would also increase aggregate demand. Decreasing taxes on firms may increase their profits, but it may also lead to further investment and expansion, increasing aggregate demand. To curb excessive aggregate demand and prevent inflation, the government can use contractionary monetary policy, such as increasing interest rates or reducing the money supply.

The Government Can Curb Excessive Aggregate Demand (Inflation) By