To eliminate an inflationary gap, the aggregate demand curve should
A)shift outward.
B)become vertical.
C)become horizontal.
D)shift inward.

Question

Quizplus · Accepted Answer

To eliminate an inflationary gap, the aggregate demand curve needs to shift inward which indicates a decrease in aggregate demand. This can be achieved through fiscal policies such as increasing taxes and decreasing government spending or through monetary policies such as increasing interest rates. Shifting the aggregate demand curve outward would only worsen the inflationary gap. The AD curve can't become vertical or horizontal as it depends on various economic factors.

To Eliminate an Inflationary Gap, the Aggregate Demand Curve Should