Suppose the economy currently has an inflationary gap. The Federal Government engages in contractionary fiscal policy. The impact of contractionary fiscal policy will be to increase short-run aggregate supply, decrease prices and increase real GDP. increase short-run aggregate supply, decrease in prices and decrease in real GDP. decrease aggregate demand, decrease prices, and increase real GDP. decrease aggregate demand, decrease prices, and decrease real GDP.

Suppose the economy currently has an inflationary gap. The Federal Government engages in contractionary fiscal policy. The impact of contractionary fiscal policy will be to increase short-run aggregate supply, decrease prices and increase real GDP. increase short-run aggregate supply, decrease in prices and decrease in real GDP. decrease aggregate demand, decrease prices, and increase real GDP. decrease aggregate demand, decrease prices, and decrease real GDP.

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 20SQ

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Concept explainers

Fiscal Policy and Money Market

Fiscal policy is one of the important tools that is used by the government to control inflation or aggregate demand in the economy. Under this policy, there are two rules which are used by the government, one is the expenditure of the government and the other is the taxation or income of the government which it collects from the public.

Question

Suppose the economy currently has an inflationary gap. The Federal Government engages in contractionary fiscal policy. The impact of contractionary fiscal policy will be to

increase short-run aggregate supply, decrease prices and increase real GDP.

increase short-run aggregate supply, decrease in prices and decrease in real GDP.

decrease aggregate demand, decrease prices, and increase real GDP.

decrease aggregate demand, decrease prices, and decrease real GDP.

Definition Definition Total supply of goods and services in an economy at a certain price level in a specific time period.

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