You are hired by the Council of Economic Advisors (CEA) as an economic consultant. The chairperson of the CEA tells you that she believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. She wants to know what policy to pursue to increase aggregate output by $300 billion. The best estimate she has for the
MPC is 0.8. Which of the following policies should you recommend?
◦ Increase government purchases by $75 billion.
◦ Reduce taxes by $75 billion.
◦ Reduce taxes by $75 billion and to increase government purchases by $75 billion.
◦ Reduce the budget deficit by $300 billion.
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