--%>

Governments fiscal policy options for an inflationary gap

Describe government’s fiscal policy options for an inflationary gap?  Employ the aggregate demand-aggregate supply model to illustrate the impact of these policies on the price level. 

E

Expert

Verified

Options are to decrease government spending, raise taxes, or some combination of both. If the price level is flexible downward, it will drop.  In the real world, the goal is to drop inflation—to keep prices from increasing so rapidly—not to decrees the price level. 

   Related Questions in Finance Basics

  • Q : State Section 8.50 Section 8.50 : The

    Section 8.50: The Control Section of Budget Act gives the authority to raise federal funds expenses authority.

  • Q : How does the market find out the fair

    How does the market find out the fair value of a bond?The fair value of bond is the present value of the bond's coupon interest payments plus the present value of the face value payment at maturity, discounted at the market's required rate of re

  • Q : Define Governors Budget Governor's

    Governor's Budget: The publication the Governor represents to the Legislature, by January 10 every year. It has recommendations and approximates for the state’s financial operations for the budget year. This also displays the real revenues and e

  • Q : Consolidated balance sheets for the

    In the below table you will determine consolidated balance sheets for the chartered banking system & the Bank of Canada. Employ columns 1 through 3 to show how the balance sheets would read after each of transactions a to c is finished. Analyze

  • Q : Describe matching principle of working

    Describe matching principle of working capital financing? Explain the benefits of following this principle? The matching principle is while short-term financing is utilized for temporary current assets while long-term financing is utilized for

  • Q : Employ the aggregate demand-aggregate

    Normal 0 false false

  • Q : Describe trustworthy collateral from

    Describe trustworthy collateral from the lenders' perspective? Describe whether accounts receivable and inventory are trustworthy collateral. Assets which are readily marketable, of stable value, and not likely to "disappear" make for trustwort

  • Q : What is Continuing Appropriation

    Continuing Appropriation: This is an appropriation for the set amount which is obtainable for more than 1-year.

  • Q : Cyclical unemployment Suppose that in a

    Suppose that in a specific year the natural rate of unemployment is 5 percent and the actual rate of unemployment is 9 percent. Employ Okun's law to fin out the size of the GDP gap in percentage-point terms. If the nominal GDP is $500 billion in that year, how much ou

  • Q : Financing costs in capital budgeting

    How are financing costs incorporated generally into the capital budgeting analysis procedure? Usually financing costs are captured in the discount or hurdle rate while doing NPV or IRR analysis. Usually the operating cash flows do not comprise