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

question 345

Multiple Choice

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 $300 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 $75 billion.
• B) Reduce taxes by $75 billion.
• C) Reduce taxes by $75 billion and to increase government purchases by $75 billion.
• D) Reduce the budget deficit by $300 billion.

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Definitions:

Monopoly

A market structure characterized by a single seller who has exclusive control over the product or service, leading to limited competition.

Average Total Cost

The total cost of production divided by the quantity of output produced, representing the per unit cost of production.

Natural Monopolist

A single supplier in a market where the costs of production are lowest when just one firm provides the product or service.

Reduce Costs

Measures and practices aimed at decreasing expenses and improving efficiency in processes or operations.