When the economy overheats,the government sometimes cools it down with higher taxes,spending reductions,and less money.Which of the following indicates the appropriate change in the U.S.economy after government intervention?

Question

Quizplus · Accepted Answer

When the government intervenes to cool down an overheating economy, it does so by implementing measures that reduce the amount of money in circulation, increase taxes, and decrease government spending. This decrease in aggregate demand leads to a leftward shift in the aggregate demand curve. As a result, the economy moves down along the aggregate demand curve, with lower output and prices. Therefore, the correct answer is A.

When the Economy Overheats,the Government Sometimes Cools It Down with Higher