Aggregate demand is the total demand for the final goods and services produced in an economy.

Suppose real output falls in the aggregate economy. Which is correct?

A) A real business cycle theorist thinks that there was a negative shock to total factor productivity, and that the government should therefore increase expenditures. B) A New Keynesian thinks that the output gap has fallen, and central bank's interest rate target should rise. C) A real business cycle theorist thinks that total factor productivity has risen, and that the government should do nothing . D) none of the above.

If a firm can double output by doubling the size of its operation, it is subject to

a. economies of scale b. diseconomies of scale c. constant returns to scale d. increasing returns to scale e. diminishing returns to scale