If policymakers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply,the appropriate fiscal policy response is to
A)increase taxes.
B)increase government spending.
C)use expansionary fiscal policy.
D)increase interest rates.

Question

Quizplus · Accepted Answer

Increasing taxes is a form of contractionary fiscal policy, which can help slow down an economy that is growing too quickly and reduce inflation by decreasing consumers' disposable income, thereby reducing aggregate demand.

If Policymakers Are Concerned That the Economy Is in Danger