An economy in long-run equilibrium experiences an increase in aggregate demand. According to the classical model,

If the economy is operating on the long-run aggregate supply curve, then expansionary fiscal policy will

A) generate higher prices in the short run, but will induce aggregate supply to increase in the long run. B) generate an increase in real GDP and higher prices in the short run, but then real GDP will decrease to its long-run level, and the price level will increase some more. C) generate an increase in real GDP without higher prices in the short run, but then real GDP will return to its long-run level, and the price level will increase. D) generate an increase in real GDP and higher prices in both the short run and the long run.

Refer to the diagram in which the downsloping lines are budget lines and I 1 , I 2 , and I 3 comprise an indifference map. The combinations of products M and N indicated by points 1, 2, and 5 are such that:

A. point 2 yields more utility than either 1 or 5.
B. points 1 and 5 yield more utility than point 2.
C. points 1, 2, and 5 yield equal amounts of utility.
D. the levels of utility associated with these three points cannot be compared.