Assume the economy faces high unemployment but stable prices. Which combination of government policies is most likely to reduce unemployment?

Question

Quizplus · Accepted Answer

The purchase of government securities in the open market and an increase in government spending is known as expansionary monetary and fiscal policy, which is aimed at stimulating aggregate demand in the economy. Through the purchase of government securities, the central bank injects liquidity into the economy, which increases the money supply and lowers interest rates, thereby encouraging more borrowing and spending by households and firms. An increase in government spending will also increase aggregate demand by creating jobs and income for workers, which will in turn stimulate more spending. These policies are likely to reduce unemployment by boosting job creation and economic growth.

Assume the Economy Faces High Unemployment but Stable Prices