Which of the following would help reduce an inflationary gap?
A)An increase in tax rates.
B)An increase in interest rates.
C)A decrease in exports.
D)A decrease in government spending
E)An increase in consumption

Question

Quizplus · Accepted Answer

An inflationary gap occurs when the aggregate demand in an economy exceeds its aggregate supply. To reduce an inflationary gap, it is necessary to reduce aggregate demand. Among the given options, only a decrease in government spending would help to decrease aggregate demand and reduce the inflationary gap. The other options would either have no impact on aggregate demand (tax rates, consumption) or would increase it (exports, interest rates).

Which of the Following Would Help Reduce an Inflationary Gap