-If an economy is at an equilibrium with an inflationary gap, policymakers can use

Question

Quizplus · Accepted Answer

To address an inflationary gap, policymakers can use discretionary fiscal policy to decrease government expenditure. This reduces the aggregate demand in the economy, helping to cool down inflationary pressures. Cutting taxes or increasing government expenditure would exacerbate the inflationary gap, and automatic fiscal policies are not actively decided upon to address immediate economic conditions.

-If an Economy Is at an Equilibrium with an Inflationary