If a surge in investor and consumer confidence causes spending to rise above the economy's long-term natural output level, what action should policymakers take using activist stabilization measures?

Show Answers

Reduce government expenditures, causing the aggregate demand curve to shift leftward.Cut taxes, leading to a rightward shift in the aggregate demand curve.Lower taxes, resulting in a leftward movement of the aggregate demand curve.Reduce government spending, which moves the aggregate demand curve to the right.

Explanation

To counteract excessive spending above the natural output, policymakers should reduce government spending, which shifts the aggregate demand curve to the left, helping stabilize the economy.