1. If the marginal propensity to save is 0.4 (or 40%) and the government plans to spend $4,000 in the economy, then what will be the change in national income as a whole? (1 point)

	The national income will increase by $10,000.
	The national income will increase by $25,000.
	The national income will decrease by $10,000.
	The national income will decrease by $25,000.
	The national income will remain constant.

2.Which of the following is true about the upward-sloping, short-run supply curve? (1 point)

	Firms do not change their prices in the short run because costs of changing prices add up.
	Individual firms do not misinterpret and tend to produce less given increased prices.
	Prices are flexible and change very fast in the short run economy.
	The wealth effect ensures an upward-sloping SRAS curve.
	Wages immediately reflect a rise in the prices in the short run.

3.Which of the following is true about the long-run aggregate supply curve (LRAS)? (1 point)

	The LRAS shows the potential output of an economy.
	The LRAS shows the relationship between savings and capital formation.
	The LRAS shows the relationship between price and demand.
	The LRAS shows the potential surplus earned by a consumer.
	The LRAS shows the relationship between unemployment and inflation.

4.Which of the following is true if the economy is in long run equilibrium? (1 point)

	There is an inflationary output gap in the economy.
	There is a deflationary output gap in the economy.
	Equilibrium is unstable and will go on fluctuating.
	There is full employment in the economy.
	Full employment level is not achievable in the long run.

5.Assume an economy is in short-run equilibrium with a real output (or real GDP) of Y₀ and a price level of PL₀. If the government increases income taxes on all income levels, what is the likely effect? (1 point)

	An increase in real output and a decrease in the price level
	A decrease in real output and a decrease in the price level
	An increase in real output with an indeterminate effect on the price level
	An increase in real output and an increase in the price level
	An indeterminate effect on real output and an increase in the price level

6.Use the graph to answer the question that follows.

\fNominal S'm Sm S"m interest rate % O' r' Jo Dm m' m m" Quantity