Assume that aggregate demand in the economy is excessive, causing an inflationary gap.Which of the following would be most in accord with appropriate government fiscal policy?
A)an increase in federal income tax rates
B)an increase in the size of income tax exemptions for each dependent
C)passage of legislation providing for the construction of 8,000 new post office buildings
D)an increase in soil conservation subsidies to farmers

Question

Quizplus · Accepted Answer

An increase in federal income tax rates would decrease disposable income and reduce consumption, thus lowering aggregate demand and closing the inflationary gap. B, C, and D are all forms of government spending or tax cuts that would increase aggregate demand and exacerbate the inflationary gap.

Assume That Aggregate Demand in the Economy Is Excessive, Causing