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.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

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

Price Level LRAS C P BAD2_SRAS A AD1 Y IncomeReal interest rate % S'If O' 8% S"If 7% O' DIf O $1600 $1700 Quantity of loanable funds $Price of US. dollars in terms of euros P2 P1 Number of US. dollars