-Refer to the above figure. Suppose the relevant aggregate demand curve is AD₂. If the government wants to use discretionary fiscal policy to close the existing gap, it should
A)decrease taxes.
B)increase taxes.
C)increase the money supply.
D)decrease government spending.

Question

-Refer to the above figure. Suppose the relevant aggregate demand curve is AD₂. If the government wants to use discretionary fiscal policy to close the existing gap, it should
A)decrease taxes. 
B)increase taxes. 
C)increase the money supply. 
D)decrease government spending.

Quizplus · Accepted Answer

Decreasing taxes is a form of expansionary fiscal policy, which can increase aggregate demand and help close a recessionary gap.

-Refer to the Above Figure