How can an inflationary gap be closed?
A)By an increase in aggregate demand.
B)By an increase in government spending.
C)By an increase in the price level.
D)By an increase in taxes.
E)By a decrease in aggregate supply.

Question

Quizplus · Accepted Answer

An inflationary gap can be closed by increasing taxes, which reduces disposable income, decreases consumption, and ultimately lowers aggregate demand, helping to stabilize the price level.

How Can an Inflationary Gap Be Closed