The President of Vulcan hires you as an economic consultant. He is concerned that the output level in Vulcan is too high and that this will cause prices to rise. He feels that it is necessary to reduce output by $10 billion. He tells you that the MPC in Vulcan is 0.6. Which of the following would be the best advice to give to the Vulcan president?
A. increase taxes by $10 billion
B. reduce government purchases by $10 billion
C. reduce government purchases by $4 billion
D. increase taxes by $2.5 billion
Answer: C
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