Paper 3 · Population and Labour
A government builds roads, dams and housing and cuts taxes in order to reduce unemployment. This policy works because
Athe workers employed on the projects are removed from the labour force figures
Btaxes collected on the completed roads and dams pay for the projects themselves
Cpublic projects are exempt from the wage laws that apply to private firms
Dhigher spending raises total demand, so firms produce more and hire more labour
Explanation: This is expansionary fiscal policy. Government spending and the extra spending that lower taxes leave in households' hands both raise aggregate demand, firms respond by producing more, and producing more takes more workers. The multiplier then spreads that extra income through the rest of the economy.
Derived from ZIMSEC Economics 4050/3 Paper 3, June 2023, Q2