If the Economy Is Experiencing an Inflationary Gap and the Government

question 218

Multiple Choice

If the economy is experiencing an inflationary gap and the government wants to accelerate the adjustment to the long-run equilibrium, it should

• A)reduce aggregate demand by cutting government spending or raising taxes.
• B)reduce aggregate demand by increasing government spending or cutting taxes.
• C)increase aggregate supply by cutting government spending or raising taxes.
• D)increase aggregate supply by increasing government spending or lowering taxes.

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Definitions:

Recession

A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

Congress

The national legislative body of the United States, consisting of the Senate and the House of Representatives.

Individual Choices

The decisions made by individuals based on preferences, income, and prices that determine what goods and services they acquire.

Economic Capability

The ability of an individual, company, or country to produce goods or services efficiently, using available resources and technology.