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Figure: Fiscal Policy Options
-(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD', the most appropriate discretionary fiscal policy is to _____ government spending and _____ income tax rates.
A)increase; increase
B)increase; decrease
C)decrease; increase
D)decrease; maintain

Question

Use the following to answer questions:
Figure: Fiscal Policy Options 
-(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD', the most appropriate discretionary fiscal policy is to _____ government spending and _____ income tax rates.
A)increase; increase 
B)increase; decrease 
C)decrease; increase 
D)decrease; maintain

Quizplus · Accepted Answer

If the aggregate demand curve is AD', it suggests that the economy is below its potential output. To stimulate the economy, the government should increase spending and decrease income tax rates to boost aggregate demand.

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