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 $200 billion. The best estimate he has for the
MPC is 0.6. Which of the following policies should you recommend?
◦ increase government spending by $80 billion
◦ increase taxes by $133.33 billion
◦ reduce taxes by $150 billion and decrease government spending by $100 billion
◦ reduce the budget deficit by $200 billion
A Comparison of Economic Systems
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