The correct option is C. By decreasing taxes to increase consumers' money supply such a course of action might a government taken to respond to the downturn revealed in this graph.
Tax reductions increase disposable income, enabling consumers to make larger purchases and boosting GNP. By encouraging consumers to spend more of their increased discretionary income on goods and services, tax reductions shift the aggregate demand curve outward.
Taxes are reduced by the government, which raises disposable income. Higher demand and higher production result from this. Therefore, lowering taxes is the recommended fiscal policy in the event of a weak economy and excessive unemployment.
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