Question

In: Economics

discuss the types of monetary and fiscal policies that could be introduced to reduce unemployment

discuss the types of monetary and fiscal policies that could be introduced to reduce unemployment

Solutions

Expert Solution

Reduction of unemployment requires the economy to expand – more growth creates more job opportunity and reduces unemployment. Therefore, expansionary monetary and fiscal policies should be undertaken.

Types of expansionary monetary policies:

Reduction in interest rate: If bank interest rate reduces, borrowing would be high. This creates investment opportunity so that new projects could be implemented. There will be more employment in the economy which reduces unemployment.

Open market operation: The government should come forward in purchasing bonds and securities from open market. This creates money flow and spending attitude. In the span of time it helps to reduce unemployment.

Types of expansionary fiscal policies:

Reduction of tax: Once tax reduces spending increases. GDP of a country depends on consumer spending and investment spending. If these two increases, GDP should increase too and reduces unemployment.

Government spending: If such spending increases (like in the infrastructure projects, hospital, school, etc.), people get jobs in increasing number and reduces their unemployment.


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