1. From the expenditure-income model, the assumption that producers are willing to supply additional output at a fixed price would entail:
   1. In the short run, the aggregate supply curve is completely vertical --
   2. In the short run, the aggregate supply curve is completely horizontal
   3. In the short run, the aggregate demand curve is completely vertical
   4. In the short run, the aggregate demand curve is completely horizontal

1. A report by the Reserve Bank of India estimated that the marginal propensity to consume (MPC) for the Indian economy was .6. Based on this information, select the statement that is NOT true
   1. The marginal propensity to save is .4
   2. On average, Indians consume a larger share of their disposable income than what they save.
   3. An autonomous increase in spending will have a multiplying effect increasing total GDP by 2.5 times the autonomous increase in spending --
   4. GDP will increase by 0.6 times the increase in autonomous spending

1. If the MPC is larger, then the consumption function curvebecomes ...:
   1. Flatter
   2. Steeper --
   3. More downward sloping
   4. More horizontal

1. On average in California the state income tax is 8%, while there is no state income tax in Florida. The same increase in autonomous spending will imply that:
   1. Unless California has a higher MPC that offsets the difference in taxes, Florida will experience a higher increase in real GDP
   2. Unless Florida has a higher MPC that offsets the difference in taxes, California will experience a higher increase in real GDP
   3. The same increase in autonomous spending will imply that both economies experience the same increase in real GDP regardless of their respective MPCs
   4. If Florida and California have the same MPC, their respective increases in real GDP will be the same regardless of the difference in taxes

1. Other things equal, the higher the current production capacity, ....
   1. The lower the investment spending
   2. The higher the investment spending
   3. The higher the imports
   4. The higher the consumption level

1. As a result of the new outbreaks of Covid-19 in East China and the resulting lockdowns, the levels of inventory did not decrease contrary to what was expected. This means that...
   1. Firms' estimation of sales was too high since they did not anticipate the new covid-19 outbreak. As a result, the actual sales were lower than expected therefore not decreasing the level of inventory
   2. Firms' estimation of sales was too low since they did not anticipate the new covid-19 outbreak. As a result, the actual sales were higher than expected therefore not decreasing the level of inventory
   3. Firms' production was much lower than the sales since they did not anticipate the new covid-19 outbreak. As a result, there was no decrease in the inventory.
   4. The original expectation of a decrease in inventory implies that firms were expecting to increase their level of unplanned spending.

1. Changes in inventories...
   1. Show that there is no equilibrium between planned spending and aggregate output
   2. Make up the difference between planned spending and aggregate output
   3. Are a leading indicator of future economic activity.
   4. All of the above
2. The aggregate demand curve is downward slopping because...
   1. A higher aggregate price level reduces the purchasing power of households' wealth and reduces consumer spending.
   2. A higher aggregate price level makes households hold more money and leads to a rise in interest rates.
   3. Both: a and b
   4. Neither a nor b

1. Which of the following will NOT lead to a rightward shift of the AD curve?
   1. An expansionary fiscal policy
   2. A drop in the interest rate as a result of an expansionary monetary policy
   3. Firms become more optimistic about the future of the economy
   4. Wealth of consumers increases as a result of deflation

1. Sticky wages imply that
   1. In the short run firms have no incentive to change production since workers will get paid the same regardless of the price level
   2. Workers can immediately negotiate their wage so real wages do not change regardless of the price level
   3. In the short run inflation will incentivize firms to produce more because the cost of labor decreases in real terms.
   4. The short-run aggregate supply is completely vertical and equal to the potential output.