The fiscal policy to counter an inflationary gap is a(n)

Question

Quizplus · Accepted Answer

A negative aggregate demand shock, such as a decrease in government spending or an increase in taxes, would decrease aggregate demand and help to counteract an inflationary gap. Expansionary fiscal policy (answer E) would only worsen the inflationary gap by increasing aggregate demand. Positive aggregate supply shocks (answer A) and negative aggregate supply shocks (answer B) would not directly address the issue of inflationary pressure caused by excess aggregate demand. A positive aggregate demand shock (answer C) would also worsen the inflationary gap.

The Fiscal Policy to Counter an Inflationary Gap Is A(n)