If the economy is experiencing unemployment, then the most appropriate government policy would be to:
A) shift the aggregate demand curve by using a tax increase coupled with spending cuts.
B) shift the aggregate demand curve by using a tax increase coupled with more spending.
C) shift the aggregate supply curve by using a tax cut coupled with spending cuts.
D) shift the aggregate demand curve by using a tax cut coupled with more spending.

Question

Quizplus · Accepted Answer

To combat unemployment, the government should use expansionary fiscal policy which involves increasing government spending and/or decreasing taxes to shift the aggregate demand curve to the right. This will increase overall economic activity and create jobs, thus reducing unemployment. Option D is the only choice that involves a tax cut and more spending which are both expansionary measures.

If the Economy Is Experiencing Unemployment, Then the Most Appropriate