A government might want to reduce aggregate demand if it believes that:

Question

Quizplus · Accepted Answer

If the government believes that the economy is expanding past its long-run capabilities, it may want to reduce aggregate demand to prevent overheating and inflation. This is because sustained economic growth beyond the long-run potential output can cause prices to rise too quickly, leading to inflationary pressures. The other options do not necessarily provide a clear case for reducing aggregate demand.

A Government Might Want to Reduce Aggregate Demand If It