Suppose the economy has a high level of unemployment and a low level of aggregate output.Which of the following policies could the government implement to alleviate these conditions?
A)an expansionary fiscal policy that increases tax rates
B)a contractionary fiscal policy that increases government purchases
C)automatic fiscal stabilizers
D)a contractionary fiscal policy that increases tax rates
E)an expansionary fiscal policy that increases government purchases

Question

Quizplus · Accepted Answer

An expansionary fiscal policy that increases government purchases would stimulate aggregate demand and lead to an increase in output, assuming that there is significant slack in the economy. This policy would also likely lead to a decrease in unemployment as firms hire more workers to meet the increased demand for their goods and services. The other policy options are unlikely to alleviate the high unemployment and low output conditions.

Suppose the Economy Has a High Level of Unemployment and a Low