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.