President Barack Obama and Congress cut taxes and raised government expenditures during the 2008 financial crisis. According to the aggregate supply and aggregate demand model, which of these policies would tend to reduce unemployment?

A) Both the tax cut and the increase in government expenditures
B) The tax cut but not the increase in government expenditures
C) The increase in government expenditures but not the tax cut
D) Neither the increase in government expenditures nor the tax cut

Question

Zybrea Knight · Accepted Answer

Final Answer : A, Explanation :  Both the tax cut and the increase in government expenditures would tend to reduce unemployment by increasing aggregate demand. Tax cuts increase disposable income for consumers, leading to higher consumption, while increased government expenditures directly boost demand for goods and services.

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