How might fiscal policy be used to correct an inflationary gap?
A) The exchange rate would be adjusted to encourage imports.
B) The exchange rate would be adjusted to discourage imports.
C) Government spending would be adjusted to reduce consumer spending.
D) Business operations would be regulated by the government to become more efficient.

Question

Quizplus · Accepted Answer

Fiscal policy can be used to correct an inflationary gap by reducing aggregate demand, which can be achieved by decreasing government spending or increasing taxes. This will decrease consumer spending and reduce the pressure on prices to rise, ultimately helping to control inflation. Adjusting the exchange rate or regulating business operations would not directly address the issue of inflation in the economy.

How Might Fiscal Policy Be Used to Correct an Inflationary