Final Answer:
b) Decrease taxes
Step-by-step explanation:
When the current short-run equilibrium is to the right of the long-run aggregate supply curve, it indicates an overheated economy with output exceeding its potential.
In such a scenario, appropriate discretionary fiscal policy aims to cool down the economy and bring it back to a sustainable level of output.
Decreasing taxes is a suitable option because it puts more money into the hands of consumers and businesses, stimulating spending and investment.
This increased economic activity helps to reduce the excess demand, bringing the economy back towards the long-run aggregate supply.
Lowering taxes encourages households to spend more on goods and services, and it provides businesses with additional funds for investment. This injection of money into the economy helps to close the output gap and return the economy to a more balanced state.
Other options, such as increasing government spending, might exacerbate the overheating issue, and adjusting the discount rate is more relevant to monetary policy than fiscal policy.
Therefore, in this context, decreasing taxes stands out as a prudent fiscal measure to address the imbalance and guide the economy towards a stable equilibrium.