Identify one of the following which can NOT be used to close deflationary gap
-
Increased interest rate
- Increased money supply
- Increase government expenditure
- Reduction in taxes
The correct answer is: A
Explanation
- Monetary policy is implemented by reducing the interest rates in the economy in order to increase the supply of money to enhance growth.
- The fiscal policy is implemented by the reduction of taxes and increasing government spending in order to boost demand.
- Policymakers may choose to implement a stabilization policy to close the recessionary gap and increase real GDP.