Which of the following would close an inflationary gap?
A)An increase in government spending.
B)A decrease in government spending.
C)A decrease in taxes.
D)An increase in exports.

Question

Quizplus · Accepted Answer

An inflationary gap occurs when aggregate demand exceeds the potential output of the economy, leading to rising prices and inflation. To close this gap, the government would need to reduce aggregate demand by decreasing spending, which would decrease the amount of money in circulation and reduce overall demand for goods and services. This would help to bring supply and demand back into balance and reduce inflationary pressures. The other choices (A, C, and D) would all increase aggregate demand and would not help to close an inflationary gap.

Which of the Following Would Close an Inflationary Gap