Which policy is typically adopted to combat high unemployment during an economic slowdown?

During an economic slowdown, high unemployment is often a significant concern for policymakers, and they typically adopt expansionary policy as a means to address this issue. Expansionary policy includes measures that aim to stimulate economic activity and increase demand. This can be accomplished through various tools, such as lowering interest rates, increasing government spending, or implementing tax cuts.

By decreasing interest rates, expansionary monetary policy encourages borrowing and investing by both consumers and businesses. Lower borrowing costs can lead to greater consumer spending and increased business investment, both of which help to create jobs and reduce unemployment. Moreover, increased government spending directly injects money into the economy, potentially funding infrastructure projects and public services, which can also generate employment.

While fiscal policy consists of government spending and taxation measures and is a component of expansionary policy, the broader category specifically addressing the goal of reducing unemployment during an economic slowdown is expansionary policy itself. Trade policy, on the other hand, deals with the rules and regulations governing international trade and does not directly impact domestic unemployment levels in the context of an economic slowdown. Contractionary policy, which is aimed at reducing inflation, would typically exacerbate unemployment rather than alleviate it during such times.