Identify one of the following which can NOT be used to close…

JAMB Economics 2023 169 views
Source: JAMB · 2023

Identify one of the following which can NOT be used to close deflationary gap

  1. Increase government expenditure
  2. Reduction in taxes
  3. Increased money supply
  4. Increased interest rate ✓
Explanation

A deflationary gap means total spending is too low. To close it, government must raise spending. It can spend more, cut taxes or increase the money supply.

An increased interest rate makes borrowing costlier and cuts spending, so it widens the gap.

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