If the government wants to close a GDP gap, it should:
A)borrow funds from the public by issuing bonds.
B)lower taxes and raise government spending.
C)lower government spending on social security.
D)raise both direct and indirect tax rates.
E)adopt contractionary fiscal policies to control inflation.

Question

Quizplus · Accepted Answer

Lowering taxes and raising government spending is an expansionary fiscal policy. This can increase aggregate demand, helping to close the GDP gap. Borrowing funds from the public by issuing bonds could also potentially help, but it would increase the national debt. Lowering government spending on social security or raising tax rates would both be contractionary fiscal policies, which could worsen the GDP gap by lowering aggregate demand. Adopting contractionary fiscal policies to control inflation is not relevant to closing a GDP gap.

If the Government Wants to Close a GDP Gap, It