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 low. The unemployment rate can be increased if aggregate output decreases. He wants to know what policy to pursue to decrease aggregate output by $100 billion. The best estimate he has for the
MPC is 0.9. Which of the following policies should you recommend?
◦ Decrease government spending by $10 billion.
◦ Decrease government spending by $100 billion.
◦ Increase taxes by $100 billion.
◦ Cut taxes by $60 billion and to increase government spending by $60 billion.
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