The parliament of the Republic of Baconia has hired you as an economic consultant and has provided you with the following data on current economic conditions:

• Real GDP = $8.75 trillion
• Unemployment rate = 6.2%

The BBEA (Baconia Bureau of Economic Analysis) has determined the following values:

• Real potential GDP = $9.1 trillion
• Natural rate of unemployment = 5.7%

The Baconia Parliament has been deadlocked on what type of fiscal policy to pursue to correct the economy's problems. Other than being an expert on the country's chief export, you don't know much about Baconia beyond the data just provided to you.

What would you recommend the Baconia Parliament do in terms of its government spending and its tax rates to bring its economy toward full employment?

Select one:

a.

Increase government spending and reduce tax rates.

b.

Increase government spending and raise tax rates.

c.

Decrease government spending and reduce tax rates.

d.

Decrease government spending and raise tax rates.

If the Parliament pursues your recommended policies, what will it imply for the Baconia federal budget?

Select one:

a.

The government will tend toward a budget surplus.

b.

The government will tend toward a budget deficit.

c.

The government's budget will get closer to being balanced.