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If the economy is experiencing unemployment, then the most appropriate government policy would be to shift the aggregate:

Question

If the economy is experiencing unemployment, then the most appropriate government policy would be to shift the aggregate:

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Solution

Understanding the Question

The question pertains to government policy actions in response to unemployment within the economy, specifically how these policies affect aggregate economic metrics.

Appropriate Government Policy

  1. Expansionary Fiscal Policy: When unemployment is high, governments often implement expansionary fiscal policies. This can involve increasing government spending and/or cutting taxes to stimulate demand in the economy.

  2. Aggregate Demand Shift: The aggregate demand (AD) curve will shift to the right due to increased consumption and investment from households and businesses, as they have more disposable income. This policy aims to create jobs and reduce unemployment.

  3. Aggregate Supply Consideration: While not the primary focus for immediate unemployment issues, ensuring the long-term aggregate supply (AS) growth can also be important through policies like investing in education and infrastructure. However, in the short term, the emphasis remains on shifting aggregate demand.

Final Answer

The most appropriate government policy would be to shift the aggregate demand to the right through expansionary fiscal measures, which would aim to reduce unemployment by increasing overall economic activity.

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