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