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 low. The unemployment rate can be increased if aggregate output decreases. He wants to know what policy to pursue to decrease aggregate output by $50 billion. The best estimate he has for the MPC is 0.9. Which of the following policies should you recommend?
A. cut taxes by $10 billion and to increase government spending by $5 billion
B. decrease government spending by $5 billion
C. decrease government spending by $50 billion
D. increase taxes by $5 billion
Answer: B
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