If there is an inflationary gap in the economy, then it is producing _____ than its full employment level of output, and the government can _____ transfer payments 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, the government can decrease transfer payments, which would reduce aggregate demand, helping to bring production back to the full employment level.

If There Is an Inflationary Gap in the Economy, Then