Question
Which of the following would help a government reduce an inflationary output gap? $L O 31.1$a. Raising taxes.b. Lowering taxes.c. Increasing government spending.d. Decreasing government spending.
Step 1
To reduce this gap, a government would need to decrease aggregate demand, which can be achieved through contractionary fiscal policies. a. Raising taxes: This would reduce disposable income, leading to lower consumer spending and a decrease in aggregate demand. Show more…
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Which of the following would help a government reduce an inflationary output gap? a. Raising taxes. b. Lowering taxes. c. Increasing government spending. d. Decreasing government spending.
If an economy has an inflationary expenditure gap, the government could attempt to bring the economy back toward the fullemployment level of GDP by _________ taxes or ________ government expenditures. a. Increasing; increasing. b. Increasing; decreasing. c. Decreasing; increasing. d. Decreasing; decreasing.
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