Deflationary Policy Effectiveness on AS Curve Slope

Steps:

• Deflationary fiscal policy shifts AD curve leftward to combat inflation.
• Inflation reduction requires lowering the price level via this AD shift.
• AS curve slope determines price vs. output response: steeper AS yields more price adjustment.
• Vertical AS maximizes price level drop with minimal output impact.

Why A is correct:

• Vertical AS (long-run/classical) ensures AD shift reduces price level directly, per quantity theory of money (MV=PY).

Why the others are wrong:

• B: Upward-sloping AS reduces prices but also output significantly, diluting anti-inflation focus.
• C: Horizontal AS fixes prices, so AD shift cuts output without lowering inflation.
• D: Steep but not vertical AS limits full price adjustment, causing some output loss.

Final answer: A