Suppose aggregate demand fell.In order to stabilize the economy,which of the following might the government do?
A)increase the interest rate
B)decrease government revenue
C)increase taxes
D)decrease the government deficit

Question

Quizplus · Accepted Answer

Decreasing the government deficit would involve reducing government spending or increasing taxes, both of which would have a contractionary effect on the economy. This would help to counteract the fall in aggregate demand and stabilize the economy. Increasing the interest rate might also help, as it would encourage saving and reduce borrowing, which could help to reduce inflationary pressures. However, this could also slow down economic growth, so it may not be the best option in the short term. Decreasing government revenue or increasing taxes would have a further contractionary effect on the economy, which could worsen the situation.

Suppose Aggregate Demand Fell