A government might want to reduce aggregate demand if it believes that the economy is
A) in long-run equilibrium.
B) above the natural rate of unemployment.
C) producing below full-employment output.
D) expanding past its long-run capabilities.
E) in a recession.

Question

Quizplus · Accepted Answer

A government might want to reduce aggregate demand if it believes that the economy is expanding past its long-run capabilities. This is because sustained high levels of demand can lead to inflation and potentially damage the long-term health of the economy.

A Government Might Want to Reduce Aggregate Demand If It