Suppose the economy is on the classical range of the aggregate supply curve and has a problem with inflation. According to Keynesian theory, which of the following is an appropriate discretionary fiscal policy to use in this situation?
A) a reduction in the money supply
B) less government regulation
C) increase federal spending
D) higher taxes

Question

Quizplus · Accepted Answer

According to Keynesian theory, to combat inflation in a classical range of the aggregate supply curve, the appropriate discretionary fiscal policy is to increase taxes. This reduces disposable income and decreases aggregate demand, lowering inflationary pressures.

Suppose the Economy Is on the Classical Range of the Aggregate