If the economy is growing beyond potential GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in:
A)liquidity and a decrease in interest rates.
B)government purchases.
C)oil prices.
D)taxes.

Question

Quizplus · Accepted Answer

To bring the economy back to long-run aggregate supply, fiscal policy can be used to decrease aggregate demand. One way to do this is by increasing taxes, as this will decrease disposable income and reduce consumer spending, leading to a decrease in aggregate demand. Choices A, B, and C are not relevant to the question as they do not relate to fiscal policy and are not effective in decreasing aggregate demand.

If the Economy Is Growing Beyond Potential GDP, Which of the Following