To decrease the price level the government could adopt policies that
A) increase aggregate supply and aggregate demand.
B) decrease aggregate supply and aggregate demand.
C) increase aggregate supply and decrease aggregate demand.
D) decrease aggregate supply and increase aggregate demand.

Question

Quizplus · Accepted Answer

In order to decrease the price level, the government needs to increase aggregate supply (i.e. encourage production) while decreasing aggregate demand (i.e. reduce spending). This can be achieved through policies such as reducing taxes for businesses to incentivize production and increasing the interest rate to discourage borrowing and spending. Therefore, choice C - increase aggregate supply and decrease aggregate demand - is the best option to decrease the price level.

To Decrease the Price Level the Government Could Adopt Policies