Question

1. Which of the following would be an appropriate fiscal policy action if the economy were in danger of overheating?

1. Increasing government expenditures
2. Increasing transfer payments
3. Increasing taxes
4. Increasing interest rates
5. Increasing the money supply   

2. What happens to a bank`s excess reserves when a borrower defaults on a loan?

1. Excess reserves increase
2. Excess reserves decrease
3. Excess reserves do not change   

3. What effect will the purchase of government securities by the Fed have on a bank`s total assets?      

                

1. The bank`s total assets increase            
2. The bank`s total assets decrease            
3. The bank`s total assets do not change

4. If the Laffer Curve hits its maximum at 70%, and the current marginal tax rate is 50%, what will happen to total tax receipts if marginal tax rates are cut to 40%?

1. Tax receipts will fall by 10%            
2. Tax receipts will rise by 10%            
3. Tax receipts will fall by more than 10%            
4. Tax receipts will rise by more than 10%            
5. Tax receipts will fall by less than 10%            
6. Tax receipts will rise by less than 10%     

5. At what point does the short-run Phillips Curve intersect the vertical axis?                      

1. At the natural rate of unemployment            
2. At a zero rate of inflation            
3. At the long-run equilibrium rate of inflation            
4. The Phillips Curve does not intersect the vertical axis

6. Bilbo Baggins earned $40,000 in 2018, $44,000 in 2019, and $50,000 in 2020. He owed $4,000 in taxes in 2018, and $5,000 in taxes in 201 Assuming that his marginal tax rate is the same in 2020 as it was in 2019, how much tax did he owe in 2020?      

Answer 1

Ans. Increasing taxes.

In an overheating economy inflation is going up and so do growth(at unsustainable rate). So to curb that inflation govt need to decrease money supply by its fiscal policies and to do so it needs to increase tax.

Ans. Reserve do not change

Basically reserve is kept as per the amount of liabilities. And loan defaulter leads to asset side loss.

Ans. Bank's total assets increases

By purchasing govt securities bank is improving it's asset side. Govt securities will generates gains when banks sell them.

Ans.Phillips curve does not intersect the vertical axis

As per the Phillips inflation and unemployment have stable and inverse relation.