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

question 147

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 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:

Compensation

The total amount of the monetary and non-monetary pay provided to an employee by an employer in return for work performed as required.

Personal Influence

The impact that individuals have on each other’s attitudes, opinions, or behaviors, often occurring within close relationships or social networks.

Verbal Agreement

An agreement made through spoken words and not formally documented, which can sometimes be legally binding.

Charitable Tax Relief

Tax deductions or exemptions offered to individuals or organizations that make donations to qualified charitable entities.