Economics · Macroeconomics
Suppose aggregate demand has increased output above the potential level, causing inflation. If the government wishes to prevent further price increases in the short run, which strategy should it avoid?
- 1Simply waiting for self-correction as rising wages shift short-run aggregate supply leftward.✓
- 2Implementing a contractionary fiscal policy.
- 3Adopting inflation targeting policy via monetary contraction.
- 4Applying supply-side policies to shift the long-run aggregate supply curve to the right.
Correct answer
Simply waiting for self-correction as rising wages shift short-run aggregate supply leftward.
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