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 0.75. Which of the following policies should you recommend?
◦ Reduce government spending by $500 billion and reduce taxes by $500 billion.
◦ Increase both government spending and taxes by $500 billion.
◦ Increase government spending by $500 billion and reduce taxes by $500 billion.
◦ None of these
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