-Refer to the above figure. Suppose the U.S. economy is currently operating at point C. Which of the following actions would you recommend to the president of the United States?
A)Reduce taxes to stimulate investment, consumption and net exports.
B)Increase government spending while holding taxes constant.
C)Engage in contractionary fiscal policy by reducing government spending.
D)Reduce the interest rate to stimulate investment minimizing the crowding out effect.

Question

-Refer to the above figure. Suppose the U.S. economy is currently operating at point C. Which of the following actions would you recommend to the president of the United States?
A)Reduce taxes to stimulate investment, consumption and net exports. 
B)Increase government spending while holding taxes constant. 
C)Engage in contractionary fiscal policy by reducing government spending. 
D)Reduce the interest rate to stimulate investment minimizing the crowding out effect.

Quizplus · Accepted Answer

Point C likely represents an economy operating above its potential output, indicating an overheated economy. Contractionary fiscal policy, such as reducing government spending, would help cool down the economy and prevent inflation.

-Refer to the Above Figure