What set of fiscal policies could the government use to close an expansionary gap?
A) decrease taxes, increase government purchases, and increase transfer payments
B) increase taxes, increase government purchases, and increase transfer payments
C) increase taxes, increase transfer payments, and decrease government purchases
D) increase taxes, decrease transfer payments, and decrease government purchases

Question

What set of fiscal policies could the government use to close an expansionary gap?  
A) decrease taxes, increase government purchases, and increase transfer payments 
B) increase taxes, increase government purchases, and increase transfer payments 
C) increase taxes, increase transfer payments, and decrease government purchases 
D) increase taxes, decrease transfer payments, and decrease government purchases

Quizplus · Accepted Answer

To close an expansionary gap, the government needs to cool down the economy. This can be achieved by increasing taxes (which reduces consumer spending), decreasing transfer payments (which also reduces consumer spending), and decreasing government purchases (which directly reduces demand in the economy). These actions collectively work to reduce the aggregate demand, helping to close an expansionary gap.

What Set of Fiscal Policies Could the Government Use to Close