Refer to the diagram, in which Q f is the full-employment output. If aggregate demand curve AD 2 describes the current situation, appropriate fiscal policy would be to:

A.  do nothing since the economy appears to be achieving full-employment real output.
B.  increase taxes and reduce government spending to shift the aggregate demand curve
rightward from AD 2 to AD 3 .
C.  increase taxes on businesses to shift the aggregate supply curve rightward to reduce the
price level.
D.  reduce taxes and increase government spending to shift the aggregate demand curve from
AD 2 to AD 1

answer:

A.  do nothing since the economy appears to be achieving full-employment real output.