Answer to Question #319929 in Macroeconomics for tani

Question

By how much would government expenditure have to change to close the gap? (assuming no shifts in other injections or withdrawals?

Answer 1

Fiscal policy means using either taxes or government spending to stabilize the economy. Expansionary fiscal policy can close recessionary gaps (using either decreased taxes or increased spending) and contractionary fiscal policy can close inflationary gaps (using either increased taxes or decreased spending).