A . Explain why an inflationary gap is a problem. b. Explain the Keynesian view of how the government can close an inflationary gap

a . An inflationary gap exists when expenditures are too large to keep the economy at full-employment
with stable prices. Inflation will occur.
b. If private spending by firms and households is too great, the government can close an inflationary gap
by creating a surplus budget by reducing its own spending by enough to offset the excess.