Use the following to answer questions:
-(Figure: Short- and Long-Run Equilibrium) Refer to Figure: Short- and Long-Run Equilibrium. The government should _____ aggregate demand by _____ taxes to close the _____ gap.
A) expand; increasing; inflationary
B) reduce; cutting; inflationary
C) expand; cutting; recessionary
D) reduce; increasing; recessionary

Question

Use the following to answer questions: 
-(Figure: Short- and Long-Run Equilibrium) Refer to Figure: Short- and Long-Run Equilibrium. The government should _____ aggregate demand by _____ taxes to close the _____ gap.
A) expand; increasing; inflationary 
B) reduce; cutting; inflationary 
C) expand; cutting; recessionary 
D) reduce; increasing; recessionary

Quizplus · Accepted Answer

To close a recessionary gap, the government should aim to increase aggregate demand. This can be achieved by cutting taxes, which puts more money into the hands of consumers and businesses, encouraging spending and investment.

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