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 spending by $300 billion and reduce taxes by $300 billion.
◦ Reduce government spending by $300 billion and increase taxes by $300 billion.
◦ Increase both government spending and taxes by $300 billion.
◦ Decrease both government spending and taxes by $300 billion.
Global Economic Relationships
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