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.

D)increase taxes by $28 billion.

Explanation:

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:

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