Fiscal Policy With Deficits And Unemployment
A government faces both a high budget deficit and high structural unemployment. To promote long-term economic growth, which of the following policy actions is most appropriate?
Immediately impose severe austerity measures cutting expenditures across all sectors including investments critical for future employment prospects.
Engage solely in aggressive borrowing from international financial institutions regardless of future debt sustainability concerns or employment impact assessments.
Prioritize structural reforms targeting labor markets while gradually consolidating its budget over time through deficit reduction measures that do not hamper growth significantly.
Promote extensive stimulus via public sector hiring ignoring existing budget constraints, thus potentially destabilizing macroeconomic conditions further down the line.
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