An economy is in a stable, long-run equilibrium, yet it consistently exhibits a high rate of involuntary unemployment. Policymakers want to address this persistent issue by altering the underlying structure of the labor market. Which of the following government actions is most likely to be effective in lowering this specific type of unemployment?

Analyzing Differences in Equilibrium Unemployment

If an economy is in a stable, long-run equilibrium but experiences a persistent, high level of involuntary unemployment, a significant increase in aggregate demand (e.g., through government spending) is the most direct and effective policy to permanently reduce this specific type of unemployment.

Policy Effectiveness on Equilibrium Unemployment