If the short-run aggregate supply curve intersects the aggregate demand curve to the right of the long-run aggregate supply curve, then the economy has _____ gap, and the government can close the gap by _____ taxes.

Question

Quizplus · Accepted Answer

When the short-run aggregate supply curve intersects the aggregate demand curve to the right of the long-run aggregate supply curve, it indicates an inflationary gap. To close this gap, the government can increase taxes to reduce consumer spending, thereby decreasing demand and inflationary pressures.

If the Short-Run Aggregate Supply Curve Intersects the Aggregate Demand