Either an increase in autonomous net taxes or a decrease in government purchases can close an expansionary gap.

Question

Quizplus · Accepted Answer

This statement is true according to the principles of fiscal policy. An expansionary gap refers to a situation where the actual level of GDP is higher than the potential level of GDP, indicating an overheating economy. To close this gap and stabilize the economy, fiscal policy tools can be used, such as increasing net taxes (taxes minus transfers) or decreasing government purchases. Both of these measures would reduce aggregate demand and help bring the economy back to its potential level of output.

Either an Increase in Autonomous Net Taxes or a Decrease