ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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a decrease in aggregate demand
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a decrease in aggregate supply
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an increase in the money supply
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an increase in government spending
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Detailed explanation-1: -Policies that reduce an inflationary gap include reductions in government spending, tax increases, bond and securities issues, interest rate increases, and transfer payment reductions.
Detailed explanation-2: -What Causes an Inflationary Gap? Inflationary gaps occur when aggregate demand is higher than the projected demand, which can be caused by two different things: A rise in aggregate demand. A rise in demand will naturally create a discrepancy between real demand and potential demand.
Detailed explanation-3: -Rising household wealth increases aggregate demand while a decline usually leads to lower aggregate demand. Consumers’ expectations of future inflation will also have a positive correlation with aggregate demand.
Detailed explanation-4: -Detailed Solution. The correct answer is It leads to demand-pull Inflation.
Detailed explanation-5: -Increase in taxes: Government levies new taxes and enhances the rate of prevailing ones. Surplus budget policy: Government’s expenditure should remain less than its income. More items