Suppose the Economy Is Experiencing an Inflationary Gap in the Short

question 25

Multiple Choice

Suppose the economy is experiencing an inflationary gap in the short run.The advantage of using a contractionary fiscal policy rather than allowing the economy's natural adjustment process to operate is that

• A)it will reduce the upward pressure on the price level that would otherwise occur.
• B)if private-sector expenditures increase on their own,the policy will stabilize real GDP.
• C)it will shorten what might otherwise be a long recession.
• D)it will reduce the downward pressure on the price level that would otherwise occur.
• E)it will close the output gap.

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