If unemployment is the most significant problem in the economy, which of the following actions would be an appropriate fiscal policy response?

Question

Quizplus · Accepted Answer

Decreasing taxes will increase disposable income for individuals which can lead to an increase in spending which will create a demand for goods and services, therefore increasing employment. Increasing government purchases will also create jobs and increase employment. Decreasing transfer payments may decrease consumption and aggregate demand which will worsen unemployment, so it is not an appropriate fiscal policy response in this case. Therefore, the best choice is E, both A and C above.

If Unemployment Is the Most Significant Problem in the Economy