If there is an inflationary gap in the economy, then it is producing _____ than its full employment level of output, and the government can _____ spending to close the gap.

Question

Quizplus · Accepted Answer

An inflationary gap occurs when the economy is producing more than its full employment level of output. To close this gap and bring the economy back to its potential output, the government can decrease spending, which helps to cool down the economy and reduce inflationary pressures.

If There Is an Inflationary Gap in the Economy, Then