Final answer:
To combat high unemployment, the government can use expansionary fiscal policy, which involves lowering taxes or increasing government spending. This stimulates aggregate demand, leading firms to produce more and hire additional workers, thus reducing unemployment.
Step-by-step explanation:
If the government thought unemployment was too high and wanted to successfully combat it, it could implement an expansionary fiscal policy. This type of policy typically includes either decreasing taxes or increasing government spending to stimulate the economy. The idea behind this policy is to increase aggregate demand, which in turn encourages companies to produce more goods and services and, consequently, hire more workers.
When aggregate demand increases due to either lower taxes or higher government spending, firms experience higher sales and may respond by hiring more employees to meet the increased demand for their products. This results in a decrease in unemployment. However, it's important to note that while this approach aims to diminish unemployment, it can sometimes lead to higher government debt, a concern that policymakers must weigh against the benefits of reduced unemployment.
Therefore, during times of recession when unemployment is rising, an expansionary fiscal policy can be a targeted approach to stimulate economic output and decrease unemployment rates. This policy enhances the capability of the economy to create jobs, thus reducing unemployment, and is most appropriate when the economy is producing below its potential Gross Domestic Product (GDP).