Suppose the economy experiences an inflationary gap. Policymakers who believe that Jgovernment is too big would favor which of the following policies to close the gap?

Question

Quizplus · Accepted Answer

Policymakers who believe that government is too big would favor a reduction in government spending to close an inflationary gap. This is because they believe that government spending is one of the factors causing inflation, and reducing it would help to cool down the economy and bring it back to equilibrium. The other options, such as increases in income tax rates, corporate tax rates, or interest rates, are not directly related to government spending and may have unintended consequences on the overall economy.

Suppose the Economy Experiences an Inflationary Gap