Which of the following is the correct sequence of events by which fiscal policy impacts unemployment?
A) An increase in government spending causes an increase in aggregate demand, which leads to higher output with more jobs.
B) An increase in government spending causes an increase in short-run aggregate supply, which leads to higher output and more jobs.
C) A decrease in government spending causes an increase in short-run aggregate supply, which leads to higher output and more jobs.
D) An increase in taxes causes a decrease in aggregate demand, which leads to lower output and more jobs.

Question

Quizplus · Accepted Answer

Fiscal policy impacts unemployment primarily through changes in government spending and taxation that affect aggregate demand. An increase in government spending boosts aggregate demand, leading to higher output and employment, as described in option A. Options B and C incorrectly suggest changes in short-run aggregate supply, and option D incorrectly states that an increase in taxes, which actually decreases aggregate demand, would lead to more jobs.

Which of the Following Is the Correct Sequence of Events