If the government wants to decrease the price level and real output in an economy in the long run, it should engage in a(n):

Question

Quizplus · Accepted Answer

To decrease the price level and real output in the long run, the government should engage in a contractionary fiscal policy. This can be done by increasing taxes and decreasing government purchases. When taxes are increased, disposable income decreases, leading to a decrease in consumption spending. Similarly, when government purchases are decreased, it leads to a decrease in aggregate demand and hence, real output. This policy is known as 'fiscal restraint' and is used to control inflation in the long run.

If the Government Wants to Decrease the Price Level and Real