Question

To close a contractionary gap using fiscal policy the government can

Answer 1

To close a contractionary gap using fiscal policy the government can increase its spending and decrease the taxes as well.

This may be due to the fact that when the supply is higher than the demand, all that the government can do is to reduce the taxes in order to increase the demand for such a product.

The government may as well decide to spend more in order to ensure the creation of  jobs and hence the demand.