you are a member of congress. the economy is currently experiencing an inflationary gap. which of the…

you are a member of congress. the economy is currently experiencing an inflationary gap. which of the following are fiscal policies that congress can enact in an attempt to correct the economy? a. an increase in the interest rate and a decrease in the money supply. b. a decrease in government spending and an increase in taxes. c. a decrease in the money supply and an increase in taxes. d. an increase in government spending and a decrease in taxes.

you are a member of congress. the economy is currently experiencing an inflationary gap. which of the following are fiscal policies that congress can enact in an attempt to correct the economy? a. an increase in the interest rate and a decrease in the money supply. b. a decrease in government spending and an increase in taxes. c. a decrease in the money supply and an increase in taxes. d. an increase in government spending and a decrease in taxes.

Answer

Brief Explanations:

To correct an inflationary gap, Congress can use contractionary fiscal policies. This involves decreasing government spending and increasing taxes to reduce aggregate demand. Option B describes such a contractionary fiscal - policy approach. Option A involves monetary policy elements (interest rate and money supply) which are not fiscal policies. Option C has a mix of expansionary (decrease in money supply is incorrect for fiscal policy context here) and contractionary elements in a muddled way. Option D is an expansionary fiscal policy which would worsen the inflationary gap.

Answer:

B. A decrease in government spending and an increase in taxes.