WEST-E Social Studies Practice Test

What change in economic indicators would likely lead to an expansionary fiscal policy by government policymakers?

1. An increase in inflation rates

2. A decrease in consumer spending

3. An increase in the rate of unemployment

4. A decrease in business investments

The correct answer is: An increase in the rate of unemployment

The selection highlights an increase in the rate of unemployment as a key indicator for implementing expansionary fiscal policy. When unemployment rises, it often reflects a weakening economy, with fewer individuals working and earning income, which in turn leads to reduced consumer spending and overall economic activity. Policymakers typically respond to high unemployment by enacting expansionary fiscal policy measures, such as increasing government spending or decreasing taxes, in an effort to stimulate economic growth. This approach aims to boost demand, create jobs, and lower the unemployment rate, fostering an environment conducive to economic recovery. Understanding how unemployment fundamentally affects the economy clarifies why it serves as a significant trigger for policymakers to consider stimulating measures aimed at enhancing economic performance. In contrast, the other indicators, such as inflation rates and decreased consumer spending, might invoke different policy responses rather than an expansionary approach.