If there were an inflationary gap,the proper government policies would involve a government:
A)deficit, the purchase of bonds in the open market, and a higher target overnight rate
B)deficit, the sale of bonds in the open market, and a higher target overnight rate
C)surplus, the sale of bonds in the open market, and a higher target overnight rate
D)surplus, the purchase of bonds in the open market, and a lower target overnight rate
E)balanced budget and lower target overnight rate

Question

Quizplus · Accepted Answer

To address an inflationary gap, the government would aim to decrease the money supply and cool down the economy. This involves running a budget surplus (reducing spending or increasing taxes), selling bonds in the open market to take money out of circulation, and setting a higher target overnight rate to discourage borrowing.

If There Were an Inflationary Gap,the Proper Government Policies Would