To close an inflationary gap with fiscal policy,the government could:
A) reduce budget allocations to highway maintenance.
B) increase provincial transfer payments to universities.
C) lower the corporate income tax rate.
D) raise the average amount awarded for a disability pension.

Question

Quizplus · Accepted Answer

To close an inflationary gap with fiscal policy, the government needs to reduce overall demand. Option A, reducing budget allocations to highway maintenance, would lead to a decrease in government spending and reduce overall demand, thereby closing the inflationary gap. Options B, C, and D would increase demand and worsen the inflationary gap.

To Close an Inflationary Gap with Fiscal Policy,the Government Could