1. If the government decides to increase expenditure on public transportation, there will be:

a) a movement along the aggregate-demand curve

b) a shift of the aggregate-demand curve to the left

c) no effect on the aggregate-demand curve

d) a shift of the aggregate-demand curve to the right

2. The exchange-rate effect implies that when the price level increases:

a) net exports do not change

b) net exports increase

c) net exports decrease

d) any of the options is possible

3. An increase in inflationary expectations would cause the aggregate supply to_______ in the short run.

a) increase

b) fluctuate

c) keep constant

d) fall

4. When factors (other than price level) that affect the quantity of goods and services supplied change:

a) the aggregate-supply curve is not affected

b) the aggregate supply becomes vertical

c) the aggregate-supply curve becomes horizontal

d) the aggregate-supply curve shifts

5. The sticky-wage theory states that in the short run:

a) wages adjust instantaneously to changes in prices

b) none of the options are correct

c) wages adjust to changes in prices; therefore, real wages are unchanged and suppliers do not adjust their output levels

d) wages do not adjust to changes in prices; therefore, real wages change and suppliers adjust their output levels

6. If people's expectations about future price levels change:

a) the short-run aggregate-supply curve becomes vertical

b) the short-run aggregate-supply curve is not affected

c)the short-run aggregate-supply curve becomes horizontal

d) the short-run aggregate-supply curve shifts

7. If resources become more productive:

a) the aggregate-demand curve shifts

b) both the short-run and the long-run aggregate-supply curves shift

c) neither the short-run aggregate curve nor the long-run supply curve shifts

d) the short-run aggregate-supply curve is not affected but the long-run aggregate curve shifts

8. Starting withAD1andAS1in the graph below, if taxes increase, then in the short run, output _______(1) and prices _______(2).

(1) a) increases b) is unchanged c) decreases

(2) a) increases b) is unchanged c) decreases

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