Suppose the MPC is 0.8 and the crowding out effect is $30 billion. The government aims to increase GDP by $250 billion.

a) Calculate the fiscal multiplier

b) how much the government needs to increase spending to increase GDP by $250 billion

c) Calculate the tax cut multiplier,

d) How much the government needs to cut taxes to increase GDP by $250 billion?

e) Explain why the tax multiplier is smaller than the fiscal multiplier.

f) If you were the economic advisor to the president, which policy will you propose to the president to achieve the $250 increase in GDP target? Increase in government spending or tax cut? Why?

g) What policy is the government trying to embark on?