Question

If the government wants to increase economic efficiency, it should:

Answer 1

To relieve inflationary pressures when the aggregate expenditure is greater than potential GDP, the government can increase taxes, reduce government spending, and implement monetary policy measures.

Step-by-step explanation:

To relieve inflationary pressures when the aggregate expenditure is greater than potential GDP, the government can take several measures:

1. Increase taxes: By increasing taxes, the government can reduce disposable income and decrease consumer spending, thereby reducing aggregate expenditure.
2. Reduce government spending: By reducing government spending on goods and services, the government can reduce the overall demand in the economy, which can help alleviate inflationary pressures.
3. Implement monetary policy measures: The government can work with the central bank to implement measures like increasing interest rates or reducing the money supply to control inflationary pressures.