If the economy has an inflationary GDP gap,one possible solution is to increase taxes.
The fiscal policies available to the federal government for decreasing aggregate demand are to decrease government spending,increase taxes,or decrease transfer payments.

Question

Quizplus · Accepted Answer

Increasing taxes can decrease disposable income, which decreases consumption and therefore decreases aggregate demand. However, this solution may not be the most effective and may have negative impacts on other areas of the economy. The other two options listed, decreasing government spending and decreasing transfer payments, would also decrease aggregate demand.

If the Economy Has an Inflationary GDP Gap,one Possible Solution