Question

To close a contractionary gap using fiscal policy the government can increase ?

Answer 1

Typically this type of fiscal policyresults in increased government spending and/or lower taxes. ... The actions of this expansionary fiscal policy would result in a shift of the aggregate demand curve to the right, which would result closing the recessionary gap and helping an economy grow.

Answer 2

To close a contractionary or recessionary gap, the government can increase its spending. It will directly increase the aggregate demand curve as it creates more demand for goods and services. On the other hand the government lowers the taxes which allows people to have more money with them and it also increases the aggregate demand curve by allowing people to consume and invest more and more.