If the economy is growing beyond potential real 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)the money supply and a decrease in interest rates.
B)government purchases.
C)oil prices.
D)taxes.

Question

Quizplus · Accepted Answer

The appropriate fiscal policy to bring the economy back to long-run aggregate supply in this scenario would be to increase taxes. This is because when the economy is already growing beyond its potential, increasing government purchases or the money supply would only further stimulate demand and exacerbate the inflationary pressure. On the other hand, increasing taxes would reduce disposable income and consumption, dampening demand and shifting the AD curve leftward toward potential output.

If the Economy Is Growing Beyond Potential Real GDP,which of the Following