If the government wants to reduce unemployment using fiscal policy, it may do so by increasing...

If the government wants to reduce unemployment using fiscal policy, it may do so by increasing government spending.

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If the government wants to reduce the unemployment it is true that the government should increase the government spending.If the government wants to reduce the unemployment through fiscal policy the government wants to adopt an expansionary fiscal policy which includes cutting of taxes .The government can reduces the taxes and increase the government spending the aggregate demand will shift to the right and reduces unemployment in the economy when the aggregate demand increases the price level and the re GDP will increase and it will reduce the unemployment. This is shown in the figure given.When the government decides to increase the government spending it will shift the aggregate demand to the right that is from AD¹ to AD ² and the price increases from p¹ to p² and the re GDP increases from Y¹ to Y².Due increase in the real GDP the unemployment will reduce .

Rahul Sunny answered 1 year ago

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