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.
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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.
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