To reduce inflation in an economy at full employment,policy-makers can use monetary policy or fiscal policy to __________ aggregate demand and lead to a __________ shift in the inflation adjustment line.
A) reduce;downward
B) increase;downward
C) reduce;upward
D) increase;upward
E) maintain;downward

Question

Quizplus · Accepted Answer

To reduce inflation in an economy at full employment, policy-makers need to reduce aggregate demand. This can be achieved through contractionary monetary policy (such as increasing interest rates) or contractionary fiscal policy (such as reducing government spending or increasing taxes). When aggregate demand decreases, the inflation adjustment line shifts downward, indicating a lower level of inflation at every level of output. Therefore, the correct choice is A, reduce aggregate demand and lead to a downward shift in the inflation adjustment line.

To Reduce Inflation in an Economy at Full Employment,policy-Makers Can