Suppose that instead of using discretionary fiscal policy to close an expansionary gap,policy makers left the economy alone.What would probably happen?
A)depression would result
B)the economy would be stuck in an expansionary gap
C)the aggregate demand curve would shift,eliminating the problem
D)the gap would close after a spurt of inflation
E)the short-run aggregate supply curve would shift to the right

Question

Quizplus · Accepted Answer

If policy makers do not use discretionary fiscal policy to close an expansionary gap, the economy would face increasing inflationary pressures as aggregate demand remains high relative to aggregate supply. Eventually, the gap would close due to the spurt of inflation.

Suppose That Instead of Using Discretionary Fiscal Policy to Close