Use the following to answer questions :
Figure: Short- and Long-Run Equilibrium
-(Figure: Short- and Long-Run Equilibrium) Look at the figure Short- and Long-Run Equilibrium. The government should _____ aggregate demand by _____ taxes to close the _____ gap.
A)expand; increasing; inflationary
B)reduce; cutting; inflationary
C)expand; cutting; recessionary
D)reduce; increasing; recessionary

Question

Use the following to answer questions :
Figure: Short- and Long-Run Equilibrium 
-(Figure: Short- and Long-Run Equilibrium) Look at the figure Short- and Long-Run Equilibrium. The government should _____ aggregate demand by _____ taxes to close the _____ gap.
A)expand; increasing; inflationary 
B)reduce; cutting; inflationary 
C)expand; cutting; recessionary 
D)reduce; increasing; recessionary

Quizplus · Accepted Answer

To close a recessionary gap, the government should expand aggregate demand. This can be achieved by cutting taxes, which increases disposable income and consumption, thereby boosting aggregate demand.

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