The spending reduction necessary to bring an overheated economy back to full employment is called the
A) recessionary gap.
B) GDP gap.
C) inflationary gap.
D) gap analysis.

Question

Quizplus · Accepted Answer

The spending reduction necessary to bring an overheated economy back to full employment is called the inflationary gap. This refers to a situation where the economy is operating beyond its potential and there is an upward pressure on prices due to excess demand. To address this situation, the government or central bank may use contractionary fiscal or monetary policies to reduce aggregate demand and bring the economy back to its potential level of output.

The Spending Reduction Necessary to Bring an Overheated Economy Back