You Are Hired by the Council of Economic Advisors (CEA)

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 $400 billion. The best estimate she has for the MPC is 0.8. Which of the following policies should you recommend?

A) increase government purchases by $100 billion
B) reduce taxes by $100 billion
C) reduce taxes by $100 billion and increase government purchases by $50 billion
D) reduce the budget deficit by $400 billion