Refer to the Figure Below

question 89

Multiple Choice

Refer to the figure below.The economy pictured in the figure has a(n) ______ gap with a short-run equilibrium combination of the price level and output indicated by point ___.

• A)recessionary; A
• B)recessionary; B
• C)expansionary; C
• D)expansionary; A

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Definitions:

Marginal Tax Rate

The amount of tax paid on an additional dollar of income, which is typically a percentage that increases as income rises.

Horizontal Equity

The principle of tax fairness that states individuals with similar income and ability to pay should be taxed at the same rate.

Federal Income Tax

A tax levied by the federal government on the annual income of individuals, corporations, trusts, and other legal entities.

Regressive Tax

A tax system where the tax rate decreases as the taxable amount increases, imposing a heavier burden on lower-income individuals.