Question

Ben recently lost his job at a major U.S. auto plant in one of the rust belt states. After looking unsuccessfully for work in a similar industry for several months, he plans to start interviewing with road and bridge repair companies. He speculates that if the government begins to contract with companies that repair highways and bridges, he may find steady work, at least in the short-term. Which of the following statements best describes the strategy behind his thoughts?

A. The best way for the government to reign-in on too much money floating around the system is to hire people and pay them wages.
B. Ben doesn't understand the causes of unemployment. We obviously don't need any more autos on the roads if the plant has closed. Repairs will slow down rather than increase.
C. If the current administration asks the FED to raise interest rates, it will do more than if the current administration begins contracting with road repair companies.
D. By increasing government spending through road and bridge repair and construction, the government will intervene in the free-market economic system to help jump-start a weak economy.

Answer 1

Answer: Option (d) is the correct answer.

Ben view the investment by government as a way to jump start a weak economy, i.e. investment by government will allow industries to hire new employees or workforce in order to meet production demand. Thereby increasing government spending through investing in construction of road and bridge, Ben assumes that the state will intervene in market to help revive a weak economy.