In 2000, many economists believed that the most serious macroeconomic problem confronting the U.S.economy was an inflationary gap.Which policies would be effective in dealing with this problem?
A)Increase transfer payments.
B)Increase government purchases.
C)Decrease personal income taxes.
D)Increase personal income taxes.

Question

Quizplus · Accepted Answer

Increasing personal income taxes would reduce disposable income and decrease aggregate demand, which would help to close the inflationary gap. Option A, increasing transfer payments, and option B, increasing government purchases, would increase aggregate demand and potentially exacerbate inflation. Option C, decreasing personal income taxes, would increase disposable income and potentially worsen inflation.

In 2000, Many Economists Believed That the Most Serious Macroeconomic