Question

If an economy is experiencing an unemployment rate that is less than the natural rate, then which of the following fiscal policies would you suggest to restore the economy to full employment?

Choose one:
A. Increase taxes.
B. Decrease government spending.
C. Decrease taxes.
D. Increase taxes or decrease government spending.
E. Decrease government spending or decrease taxes.

Answer 1

Answer:C. Decrease taxes

Step-by-step explanation:

When an economy is experiencing unemployment that is less than the natural rate, the right policy is to purse expansionary policies which will make more funds to be available in the economy to increase investment and demand.

Expansionary policies can be implemented by increasing goverments expenditures and reducing tax, the reduced tax will increase the disposable income of the citizens and invariably investment and demands all things being equal and these are the justification for the chosen option.

An increase in tax or a reduction in government expenditures will excercebate the unemployment all other things being equal.