📚 Learning Guide
Recession and Fiscal Policy Actions
hard

In the context of Keynesian economics, which fiscal policy action is most effective in reducing the unemployment rate during a recession?

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Choose the Best Answer

A

Increasing taxes to reduce government debt

B

Cutting social welfare programs to balance the budget

C

Increasing government spending on infrastructure projects

D

Reducing interest rates to encourage private investment

Understanding the Answer

Let's break down why this is correct

Answer

In Keynesian economics, one of the most effective fiscal policy actions to reduce unemployment during a recession is increasing government spending. When the government spends money, it creates jobs directly by hiring workers for public projects, like building roads or schools. This not only puts money in the hands of those workers but also helps local businesses because these workers will spend their earnings on goods and services. For example, if the government decides to build a new bridge, it will hire construction workers, and those workers will then buy lunch at local restaurants or shop in nearby stores, boosting the economy. Overall, this cycle of spending helps to lower unemployment by stimulating demand for jobs and goods.

Detailed Explanation

Increasing government spending on infrastructure projects creates jobs. Other options are incorrect because Some think raising taxes helps pay off debt; Cutting social programs seems like saving money.

Key Concepts

fiscal policy
unemployment rate
Keynesian economics
Topic

Recession and Fiscal Policy Actions

Difficulty

hard level question

Cognitive Level

understand

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