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.

---

Definitions:

Dividend Growth

The increase in the dividend payout issued by a company over time, reflecting its growing earnings or cash flow.

Flotation Costs

Costs borne by a firm for the release of new stocks, encompassing fees for underwriting, legal advice, and registration.

New Equity

Funds raised by a company through the issuance of common stock to the public or private investors.

Quarterly Dividend

A dividend payment made by a company to its shareholders four times a year, typically every three months.