If there is an inflationary gap in the economy, discretionary fiscal policy would likely involve
An action to

Question

Quizplus · Accepted Answer

If there is an inflationary gap in the economy, it means that the aggregate demand in the economy is greater than the aggregate supply. This implies that there is excess demand and prices are rising. To prevent further inflation, discretionary fiscal policy would involve shifting the aggregate demand curve to the left. This could be done through measures such as decreasing government spending or increasing taxes, which would reduce aggregate demand and therefore inflationary pressure. Thus, answer B is the correct choice.

If There Is an Inflationary Gap in the Economy, Discretionary