Question

Unemployment is rising, and the federal government wants to encourage job growth. Which of the following actions would be an appropriate fiscal policy? A. Expand open-market operations. B. Increase spending on infrastructure projects. C. Lower discount rates. D. Raise taxes on small businesses

Answer 1

Expanding open-market operations could be an appropriate fiscal policy that could help the government encourage job growth.

Answer 2

The correct answer is B.

When the invesment of public funds in infraestructure projects increases, then the state is conducting a expansionary fiscal policy. It actually enhances employment figures directly, because people need to be employed to conduct those projects. Moreover, these people start earning a salary and demanding higher quantities of goods and services, therefore triggering the increase of production in other sectors and the need for more workers there too.

• Both A and C could achieve the desired result of increasing employement, but they are both mechanism of the monetary and not fiscal policy.
• D would cause the opposite result. It describes a tool for a contractionary fiscal policy.