In order to eliminate an Inflationary GDP gap, the government may opt to reduce government spending or increase taxes.
What is an Inflationary GDP gap?
The inflationary gap basically measures the difference between the current level of real GDP and the GDP that would exist if an economy was operating at full employment.
Hence, For the gap to be considered inflationary, the current real GDP must be higher than the potential GDP.
However, if the government want to to eliminate an Inflationary GDP gap, they may opt to reduce government spending or increase taxes.
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