You are a member of Parliament when the economy is in a recession.If your goal is to achieve a fully employed labour force,which of the following fiscal policy scenarios should you follow?

Question

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In a recessionary period, the economy is suffering from an underutilization of resources, particularly labour. To achieve a fully employed labour force, the government should focus on increasing aggregate demand. Option B involves increasing government purchases, reducing taxes, and/or increasing transfer payments. All of these fiscal policies will lead to an increase in aggregate demand, which in turn will lead to an increase in employment levels. An increase in government purchases will create job opportunities directly, while a reduction in taxes will allow consumers to have more disposable income leading to an increase in consumption, hence increasing aggregate demand. Finally, an increase in transfer payments, particularly those targeted at low-income earners, will boost their spending, thereby leading to an increase in aggregate demand.

You Are a Member of Parliament When the Economy Is