You are hired by the Bureau of Economic Analogies (BEA) as an economic consultant. The chairperson of the BEA tells you that he believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. He wants to know what policy to pursue to increase aggregate output by $500 billion. The best estimate he has for the
MPC is 0.7. Which of the following policies should you recommend?
◦ Decrease government spending by $75 billion.
◦ Reduce taxes by $214.3 billion.
◦ Reduce taxes by $314.3 billion and to decrease government spending by $500 billion.
◦ Reduce the budget deficit by $300 billion.
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