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Question 2: Keynesian Fiscal Policy Assume the economy has a GDP of $19,400 billion. The unemployment rate is at 7.5% and has been slowly rising for the last 6 months. Inflation was at 2.3% one year ago but has since dropped to 1.4%. The MPC in the economy is .80. The Natural Rate of Unemployment is 4.0% and the target inflation rate is 2.0%. a. What problem(s) is the economy currently facing? Explanation Using the Data b. Which Fiscal Policy (Expansionary or Contractionary) is most appropriate to deal with the problem(s) you identified in Question a? Explain in Detail. c. If the government does decide to act, what size government spending would fix the problem? Calculations and Detailed Explanation. d. What size tax change would fix the problem? Calculations and Detailed Explanation. e. Why would it be more effective for government to solve the problem using government spending (Question c above) rather than taxes (Question d above) to solve the problem? Detailed Explanation. (Do not start a sentence with the word "because.") f. Assuming that government does decide to use the Government Spending approach rather than the tax approach, what could happen to cause the policy to be ineffective? Detailed Explanations