Expansionary Policies to Combat High Unemployment

Steps:

• High unemployment indicates economic slack, requiring stimulus to boost aggregate demand.
• Expansionary monetary policy lowers interest rates to encourage borrowing and investment.
• Expansionary fiscal policy increases government spending and cuts taxes to raise consumption and output.
• Evaluate options for alignment with these demand-side measures.

Why A is correct:

• Decreasing interest rates, increasing expenditure, and decreasing taxes all expand aggregate demand per Keynesian theory, stimulating job creation.

Why the others are wrong:

• B: Contractionary policies (higher rates, lower spending, higher taxes) reduce demand and worsen unemployment.
• C: Mixed approach; increasing taxes offsets spending gains, limiting demand stimulus.
• D: Inconsistent; higher rates and lower spending contract economy, despite tax cuts.

Final answer: A