Question

Congratulations. You’ve just been appointed chairman of the Council of Economic Advisers in Textland. You must rely on your research assistant for the specific numbers. He says income is $54,000, mpe is 0.6, and the president wants to raise output by $2,160.

a. You should advise the president to:

Increase government spending by $________ or  decrease taxes by $________

b. Your research assistant comes in and says “Sorry, I meant that the mpe is 0.4.” You redo your calculations.
Increase government spending by $________ or  decrease taxes by $________

c. You’re just about to see the president when your research assistant comes running in, saying, “Sorry, sorry, I meant that the mpe is 0.5.” Redo your calculations.
Increase government spending by $________ or  decrease taxes by $________