The government wishes to close an inflationary gap by reducing real GDP by $400 billion. Assuming a tax multiplier of 4 and an income multiplier of 5, which of the following policy prescriptions would reduce the inflationary gap by $400 billion?
A. Decreasing government spending by $400 billion and increasing taxes by $400 billion.
B. Decreasing government spending by $160 billion and decreasing taxes by $100 billion.
C. Decreasing government spending by $40 billion and decreasing taxes by $40 billion.
D. Decreasing government spending by $80 billion and keeping taxes the same.
Answer: B
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Which one of the following possibilities is TRUE?
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If an economy used gold as money, its money would be
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