How can governments act to reduce unemployment through monet

How can government\'s act to reduce unemployment through monetary or fiscal policy? why might such action be considered a bad idea? Explain in detail. (20 markes Question)

Solution

Fiscal Policy: Government’s fiscal policy can act to reduce the unemployment by increasing aggregate demand hence increasing economic growth. It is aims to influence aggregate demand. Government can use the expansionary fiscal policy. By doing so govt. cutting down the taxes and increasing govt. spending. It would results into the automatic increase in disposable income of consumer which will helps to increase consumption level as cutting taxations will put more money in consumers hands and it will further increases the aggregate demand. with the increasing demand, the firm has to balanced with the demand by supplying the more and it will leads to increase in demand for more workers and unemployment level will be reduce.

Other way of fiscal policy is increases government spending. Government spending such as create infrastructure, roads, buildings etc can create new public works and create new jobs that helps in reducing unemployment and also increases the disposable income and spending.

Monetary Policy: Government’s monetary policy involves the cutting down the interest rates. With lower interest rates, borrowing costs will be reducing which will encourage people to spend more. as a result it will increases the aggregate demand, increases gross domestic products and ultimately it will helps in reducing unemployment.

Such actions of reducing unemployment through monetary and fiscal policy proved as bad idea because: