If excessive aggregate demand causes prices to rise,which of the following would be a correct fiscal-policy action?
A) An increase in government expenditures
B) An increase in the money supply
C) An increase in Social Security payments
D) A tax increase

Question

Quizplus · Accepted Answer

A tax increase would decrease disposable income, thus decreasing aggregate demand and reducing inflationary pressure on prices. An increase in government expenditures or Social Security payments would have the opposite effect, increasing aggregate demand and exacerbating the problem. An increase in the money supply would lead to inflationary pressures in the long run, but in the short run, it may temporarily stimulate economic growth and increase aggregate demand.

If Excessive Aggregate Demand Causes Prices to Rise,which of the Following