Expansionary fiscal policy can be used to reduce unemployment by

Question

Quizplus · Accepted Answer

Expansionary fiscal policy involves increasing government spending or reducing taxes to stimulate aggregate demand and increase real GDP. This increased demand can lead to firms hiring more workers to produce more output, reducing unemployment. Option A is incorrect because increasing long-run aggregate supply would not directly address unemployment in the short run. Option C is incorrect because reducing nominal wages could lead to lower spending and worsen the situation. Option D is incorrect because eliminating inefficiencies from labor markets would not necessarily increase aggregate demand in the short run.

Expansionary Fiscal Policy Can Be Used to Reduce Unemployment by