A supply-side policy approach in Figure 8.3,given AD₁ and AS₁,to achieve both lower prices and more output would be to A)Increase the growth of the money supply. B)Reduce marginal tax rates and government regulation in an effort to move AS₁ to AS₂ C)Wait until natural market forces establish full employment. D)Increase aggregate spending.

Question

Quizplus · Accepted Answer

Option B suggests reducing marginal tax rates and government regulation, which would shift the aggregate supply curve to the right (from AS₁ to AS₂) leading to an increase in output and a decrease in prices. Increasing the growth of the money supply would shift the aggregate demand curve to the right, leading to an increase in both output and prices. Waiting for natural market forces to establish full employment would not necessarily lead to a decrease in prices or an increase in output. Increasing aggregate spending would lead to an increase in both output and prices, which is not the target of the question. Thus, B is the best choice.

A Supply-Side Policy Approach in Figure 8