Suppose the Economy Is Operating at Its Full-Employment-Noninflationary GDP and the MPC

question 191

Multiple Choice

Suppose the economy is operating at its full-employment-noninflationary GDP and the MPC is 0.75.The federal government now finds that it must increase spending on military goods by $21 billion in response to a deterioration in the international political situation.To sustain full-employment-noninflationary GDP government must:

• A)reduce taxes by $28 billion.
• B)reduce transfer payments by $21 billion.
• C)increase taxes by $21 billion.
• D)increase taxes by $28 billion.

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Definitions:

Depreciation Expense

An accounting method of allocating the cost of a tangible asset over its useful life to reflect the loss in value over time.

Fiscal Period

Any period of time used by an organization or government for accounting purposes and preparing financial reports, which could be a quarter, half-year, or any other designated period.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against a fixed asset from the time of its acquisition to the current reporting period.

Unearned Gym Memberships

Revenue received from gym memberships that have not yet been earned because the service has not been provided, recorded as a liability on the balance sheet.