Question

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

A. decrease taxes
B. decrease transfer payments
C. increase government purchases
D. all of the above
E. both A and C above

Answer 1

The appropriate fiscal policy response to high unemployment would be to implement expansionary fiscal policy, which includes both decreasing taxes and increasing government purchases, hence option D 'all of the above' is correct.

Step-by-step explanation:

If unemployment is the most significant problem in the economy, the appropriate fiscal policy response would be actions that can stimulate economic activity and thus create jobs. This includes:

• Decreasing taxes: This puts more money in the hands of consumers and can increase consumption, leading to higher demand for goods and services.
• Increasing government purchases: Direct government spending on goods and services can create jobs and further increase demand within the economy.

Therefore, the correct response would be D. all of the above, as both decreasing taxes and increasing government purchases are part of expansionary fiscal policy, which is used to combat unemployment by stimulating economic growth.