you have just been hired to be an economic adviser to be President of the United States!As you know, being the "leader of the free world" entails a lot of responsibility for affairs domestically and internationallyyour boss is the face and executive of the US federal government.Though the US is a mostly market-based economy, the government spending and tax decisions Congress votes on and the President signs into law do have somewhat of an impact on the US economy.In their first year as President, the President and Congress are faced with some difficult decisions pertaining to expenditures and taxes.After consulting with Congressional leaders from both parties and consulting with high-ranking members in the administration, the President is faced with two budget policy options:

Option 1Expansionary Fiscal Policy

• Increase federal government spending by $300 billion for infrastructure. Taxes are not raised.

Option 2Restrictive Fiscal Policy

• No increase in government spending. Increase taxes on businesses and individuals: will raise annual federal income tax revenues by 10% or about $300 billion.

To give context to these policy proposals, the day you take office, the US economy looks like this:

Natural Rate of Unemployment: 5.3%

Actual Unemployment Rate (most recent month): 3.9%

Nominal GDP: $21 trillion

National Debt: $21 trillion

Real GDP growth (last 12 months): 2.9%

Average Annual Real GDP growth (last 60 months): 2.5%

Current Annual Budget Surplus/Deficit: $1.1 trillion

Historical Annual Inflation Rate: 3.2%

Inflation Rate (most recent 12 months): 1.9%

• Explain the pros and cons of each policy
• Explain why you chose the policy you did (Policy 1 or Policy 2) and why the other policy is inferior
• Provide examples, hypothetical or from the real-world, to flesh-out your argument