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Experiencing an inflationary gap and the government

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Reference no: EM131273837

If the economy is experiencing an inflationary gap and the government wants to accelerate the adjustment to the long-run equilibrium through fiscal policy, it should:

  • reduce aggregate demand by cutting government spending or raising taxes.
  • reduce aggregate demand by increasing government spending or cutting taxes.
  • increase aggregate supply by cutting government spending or raising taxes.
  • increase aggregate supply by increasing government spending or lowering taxes.

Reference no: EM131273837

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