Assume that an inflationary gap must be closed by reducing aggregate expenditures. If consumers refuse to cut spending on consumption and producers won't cut demand for investment goods, the President:
A) can do nothing.
B) must build more roads.
C) must borrow from Wall Street.
D) must cut government spending.

Question

Quizplus · Accepted Answer

If consumers and producers refuse to cut their spending, the only option left to close the inflationary gap is for the government to reduce its own spending. This can be done by cutting back on government programs or by reducing the number of government employees. By lowering government spending, the overall level of aggregate expenditure in the economy will fall, which will help to close the inflationary gap.

Assume That an Inflationary Gap Must Be Closed by Reducing