-The Economy Is at the Equilibrium Shown at Point a in the Above

question 111

Multiple Choice

-The economy is at the equilibrium shown at point a in the above figure.If the Fed

• A) buys government securities, the economy moves to an equilibrium at point c.
• B) buys government securities, the economy moves to an equilibrium at point b.
• C) sells government securities, the economy moves to an equilibrium at point c.
• D) sells government securities, the economy moves to an equilibrium at point b.
• E) None of the above are correct because the economy will remain at point a if the Fed buys or if the Fed sells government securities.

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Definitions:

U.S. Income Tax

A tax imposed by the U.S. government on the income earned by individuals, corporations, estates, and other entities.

Vertical Equity

The principle that people with higher incomes should pay more in taxes than those with lower incomes, reflecting a progressive tax system.

Proportional Tax

A tax system where the tax rate remains constant regardless of the amount on which the tax is imposed.

Regressive Tax

A tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases.