Fiscal Policy for Employment and Equity

Steps:

• Identify goals: boost employment via higher spending; reduce inequality via redistribution to low-income groups.
• Assess tax impacts: progressive system taxes higher earners more; lowering lowest rate increases low-income disposable income for consumption-driven growth.
• Evaluate benefits: raising aid to poor enhances their spending power (high multiplier) and narrows income gaps.
• Select option balancing both: tax relief for low earners spurs jobs; benefits aid equity without deterring investment.

Why C is correct:

• Decreasing lowest tax rate raises low-income disposable income, stimulating aggregate demand via Keynesian consumption multiplier; increasing benefits redistributes income, reducing Gini coefficient inequality measure.

Why the others are wrong:

• A: Raises highest tax, curbing rich's investment and employment; cuts benefits, worsening poor's consumption and inequality.
• B: Lowers highest tax, favoring rich and increasing inequality; benefits help equity but offset by regressive tax effect.
• D: Raises lowest tax, reducing poor's spending and jobs; benefits aid equity but contradicted by tax hike on vulnerable.

Final answer: C