Refer to the above diagram, in which Qf is the full-employment output. If the economy’s present aggregate demand curve is AD2:

A. the economy is achieving its maximum possible output.
B. the most appropriate fiscal policy is an increase of government expenditures or a reduction of taxes.
C. the most appropriate fiscal policy is a reduction of government expenditures or an increase of taxes.
D. government should undertake neither an expansionary nor a contractionary fiscal policy.

answer:

D. government should undertake neither an expansionary nor a contractionary fiscal policy.