Suppose that the economy is currently below its long-run equilibrium output. Which of the following is an example of monetary policy that can help put the economy back toward equilibrium?
A) Increasing the money supply to reduce interest rates to encourage more spending and investment.
B) Raising income taxes to help pay off government debt.
C) Reducing the money supply to push interest rates higher to encourage more savings.
D) Decreasing income taxes to encourage more spending and investment.
Answer: D) Decreasing income taxes to encourage more spending and investment.
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