How does the policy that Gino is describing most likely affect interest rates and unemployment? Gino is writing a paper about the effects of fiscal policies on the economy. Gino is describing a fiscal policy that aims to improve inflation.

To reduce inflation, the government would most likely use contractionary fiscal policy, such as cutting spending or raising taxes. This lowers overall demand in the economy, which can slow price increases and reduce demand for borrowing, lowering interest rates. The slowdown can also mean fewer jobs, so unemployment rises; this matches the choice that interest rates decrease while unemployment increases.

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