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

question 95

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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