The only policy lever that is effective against unemployment when the AS curve is vertical is
A)Fiscal policy.
B)Monetary policy.
C)Supply-side policy.
D)Laissez faire policy.

Question

Quizplus · Accepted Answer

When the AS curve is vertical, it means that the economy has reached its full potential output, and any increase in aggregate demand will only lead to an increase in prices rather than output. In such a situation, the only policy lever that can effectively reduce unemployment is supply-side policy. This involves implementing policies that improve the economy's productivity and efficiency, such as reducing taxes on businesses, providing incentives for research and development, and investing in education and training programs to improve the quality of labor. These policies help to increase aggregate supply, leading to an increase in output and employment without causing inflation. Fiscal and monetary policies may be ineffective in such a situation, as they may lead to inflationary pressures without any significant improvement in output and employment. A laissez-faire policy, which involves minimal government intervention in the economy, may also be ineffective in reducing unemployment when the AS curve is vertical.

The Only Policy Lever That Is Effective Against Unemployment When