Use the following graph to answer the next question. In the diagram, Qf is the full-employment output. If the economy’s present aggregate demand curve is AD2,

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

answer:

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