Question

Country Q has experienced a rapid increase in its unemployment rate and a sharp decline in its GDP.

What might policymakers do in the face of these economic indicators?

Responses

increase taxes so the government has more money to spend
increase taxes so the government has more money to spend

encourage a decrease in purchasing until employment figures increase
encourage a decrease in purchasing until employment figures increase

try to trade with other nations to increase production and create new jobs
try to trade with other nations to increase production and create new jobs

implement controls on wages, forcing employers to pay higher wages
implement controls on wages, forcing employers to pay higher wages

Answer 1

Best choice: try to trade with other nations to increase production and create new jobs.

Why:
- A rapid rise in unemployment and falling GDP indicate a recession; policymakers typically want to boost aggregate demand (e.g., lower interest rates, cut taxes, or raise government spending) to restore output and jobs.
- Of the options given, expanding trade (increasing exports or opening markets) can raise demand for domestic production and support job creation.
- The other options are counterproductive in a downturn: raising taxes or encouraging people to buy less would further reduce demand; forcing higher wages by regulation would raise firms' costs and likely increase unemployment.