Question 1
If the government wants to increase employment, government purchases should be ________ and/or taxes should be ________.
◦ increased; increased
◦ increased; decreased
◦ decreased; increased
◦ decreased; decreased
Question 2
The Prime Minister of Richlandia hires you as an economic consultant. He is concerned that the output level in Richlandia is too low and that this will cause unemployment to rise. He feels that it is necessary to increase output by $20 billion. He tells you that the
MPC in Richlandia is 0.75. Which of the following would be the best advice to give to the Richlandian Prime Minister?
◦ Increase government purchases in Richlandia by $15 billion.
◦ Reduce taxes in Richlandia by $10 billion.
◦ Increase government purchases in Richlandia by $5 billion.
◦ Reduce taxes in Richlandia by $4 billion.
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