Active macroeconomic policy would move to close an expansionary gap by decreasing aggregate demand.

Question

Quizplus · Accepted Answer

Active macroeconomic policy aims to stabilize the economy by adjusting fiscal and monetary policies. When there is an expansionary gap (when aggregate demand exceeds potential output), active macroeconomic policy would aim to decrease aggregate demand to close the gap and prevent inflation. This can be done through measures such as increasing taxes, decreasing government spending, and raising interest rates.

Active Macroeconomic Policy Would Move to Close an Expansionary Gap