Final answer:
The correct answer is option a) Reducing taxes.
Step-by-step explanation:
Governments have several tools at their disposal to stimulate the economy and move it toward the socially optimal output. During a recession, when unemployment rates increase, governments can deploy an expansionary fiscal policy, which includes either reducing taxes or increasing government spending. These measures aim to increase aggregate demand and, consequently, economic activity, leading to a decrease in unemployment.
A reduction in taxes puts more money in the pockets of consumers and increases their purchasing power. Likewise, government spending on infrastructure projects and other services can lead to a direct injection of money into the economy, creating jobs and increasing demand for goods and services.
However, options such as implementing trade barriers or decreasing the money supply can have the opposite effect, leading to a contraction of economic activity.