Suppose the council of economic advisors hired

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Suppose the Council of Economic Advisors (CEA) hired you as an Economist (Economic consultant). The head of the council tells that she believes the current unemployment rate of 9% is too high. They would like to increase real aggregate output (RGDP). She wants to know what policy to pursue to increase RGDP by $2 trillion ($2,000 billion). The best estimate she gave you is the value of MPC = 0.8. Which of the following policies should you recommend and why? You need to show your work of estimations and explain in words.

a. Increase government expenditure (G) by $400 billion

b. Reduce taxes by $400 billion

c. Reduce taxes by $400 billion and increase govt. expenses by $200 billion

d. Increase G by $500 billion

Reference no: EM13743867

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