Suppose a wave of investor and consumer optimisms has increased spending so that the current level of input exceeds the long-run natural rate If policy makers choose to engage in activist stabilization policy they should ?
Correct answer: A. decrease government spending Which the shifts the aggregate demand curve to the left
- A. decrease government spending Which the shifts the aggregate demand curve to the left
- B. decrease taxes, which shifts the aggregate demand curve to the right
- C. decrease taxes, which shifts the aggregate demand curve to the left
- D. decrease government spending which shifts the aggregate demand curve to the right
Explanation
When output is above its natural rate because of excessive spending, contractionary policy is appropriate. Reducing government purchases shifts aggregate demand left and helps return output toward the natural rate.
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