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.