Suppose the economy is operating at its full-employment-noninflationary GDP and the MPC is 0.8. The Federal government now finds that it must increase spending on military goods by $20 billion in response to deterioration in the international political situation. To sustain full-employment-noninflationary GDP government must:
A. reduce taxes by $20 billion.
B. increase transfer payments by $20 billion.
C. increase taxes by $20 billion.
D. increase taxes by $25 billion.

Answer rating: 100% (QA)

Option D is correct If the economy is operating at its full employment ... View the full answer