If the economy was in equilibrium where an inflationary gap existed then Keynes would argue that governments should cut public spending and increase taxation to reduce the expenditure line to reduce the gap.

Question

Quizplus · Accepted Answer

Keynesian economics argues that during an inflationary gap, the government should reduce public spending and increase taxation to reduce aggregate demand and close the gap.

If the Economy Was in Equilibrium Where an Inflationary Gap