A policy to increase aggregate demand to cure a recessionarly gap may succeed; however, inflation is a likely result.

Question

Quizplus · Accepted Answer

Increasing aggregate demand through policies such as fiscal stimulus or monetary expansion can help cure a recessionary gap by increasing production and employment. However, when the economy approaches full capacity, further increases in demand can push prices up, leading to inflation. Therefore, in the long run, policies to increase aggregate demand must be balanced with measures to control inflation.

A Policy to Increase Aggregate Demand to Cure a Recessionarly