If government policy makers were worried about the inflationary potential of the economy, which of the following would be a correct fiscal policy change?

Question

Quizplus · Accepted Answer

If government policy makers are worried about the inflationary potential of the economy, then they would want to reduce aggregate demand in the economy. Decreasing government purchases of goods and services would reduce government spending, and thus aggregate demand, leading to a decrease in inflationary pressures. Option A would increase consumption and thus aggregate demand, increasing inflationary pressures. Option C would also increase government spending and thus aggregate demand, leading to an increase in inflationary pressures. Therefore, option B is the correct choice for reducing inflationary pressures.

If Government Policy Makers Were Worried About the Inflationary Potential