Assume the United States economy has the following:

GDP is $18,500 billion down from $19,350billionninemonths ago.

Unemployment is at7.8% up from4.2%ninemonths ago.

Inflation is stable at2.0%.

MPC=.75

NRU=4.0%

Target Inflation is 2.0%

1.Explain in detailthe problem the country is facing.Include an analysis of both inflation and unemployment including whether the economy is in a recession or not.

2.What is the size of the GDP gap?

3.Government could address the problem with either increasing government spending, cutting taxes or both. If the government decided to increase spendingto address the problem, by how much should spending be increased? If the government decided to cut taxes to address the problem, by how much should taxes be cut?

4.Should the government cut taxes or increase spendingor some combination of bothto address the problem?

5.What could happen to make the policy you recommended in Question 4 ineffective. It will take a paragraph or two to answer this question because you need to relate the specific complication to the scenario described in the questionas youexplainthe answer.