Expansionary fiscal policy can be used to reduce unemployment by
A) increasing long-run aggregate supply so as to raise real GDP.
B) increasing aggregate demand so as to raise real GDP.
C) reducing nominal wages so as to encourage firms to hire more workers.
D) eliminating inefficiencies from labor markets.
Answer: B) increasing aggregate demand so as to raise real GDP.
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The cost-output elasticity equals 1.4. This implies that:
A) there are neither economies nor diseconomies of scale. B) there are economies of scale. C) there are diseconomies of scale. D) marginal cost is less than average cost.
Which of the following is an example of an automatic stabilizer?
a. Decrease in tax rates by Congress in times of unemployment b. Decrease in tax rates by Congress in times of inflation c. Increase in government defense spending during war d. Increase in unemployment compensation during recession e. Decrease in welfare programs during inflation