Suppose the current real GDP is $400 billion and potential GDP is $480 billion. The marginal propensity to consume is constant at 0.75. What should the government do with its discretionary fiscal policy given the situation?

The government should increase government purchases by $80 billion.

The government should increase government purchases by $20 billion.

The government should cut personal income taxes by $40 billion

The government does NOT have to conduct discretionary fiscal policy in this case. The forces of automatic stabilisers will help bring the economy back to potential GDP.