This chapter shows that increased government purchases, with taxes held constant, can eliminate a contractionary gap. how could a tax cut achieve the same result? would the tax cut have to be larget than the increase in government purchases? why or why not?

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Business

Kiana Spence

2 April, 14:56

This chapter shows that increased government purchases, with taxes held constant, can eliminate a contractionary gap. how could a tax cut achieve the same result? would the tax cut have to be larget than the increase in government purchases? why or why not?

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Kadin · Answer 1

This can be achieved through expansionary fiscal policy where an increase in government purchases, decrease in net taxes, or a combination of the two aimed at increasing aggregate demand enough to reduce unemployment and return the economy to its potential output where fiscal policy is used to close a recessionary gap.