Refer to the diagram, in which Q f is the full-employment output. If the economy’s present aggregate demand curve is AD 2 :

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

answer:

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