Based on the figure below. Starting from long-run equilibrium at point C, an increase in government spending that increases aggregate demand from AD to AD1 will lead to a short-run equilibrium at point ________ creating _____gap. 
A. D; an expansionary
B. B; no output
C. B; expansionary
D. A; a recessionary
Answer: A
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An efficient distribution of goods requires that
A. everyone gets an equal share of each good. B. marginal cost equal marginal utility for the last unit produced. C. each person derives the same total utility from the good. D. since tastes differ, every person pays a different price in accordance with different marginal utilities.
John Maynard Keynes wrote The General Theory of Employment, Interest, and Money (1936) to
a. improve the gold supply balances of the British government. b. prove that the punitive nature of the Treaty of Versailles would ultimately lead to recession in Europe. c. prove that active government policy would produce unemployment and high rates of inflation. d. demonstrate that pessimistic consumers and businesspersons could reduce their spending and condemn the economy to long-run stagnation.
Government purchases include spending by federal, state, and local governments on:
A. consumer durables, nondurables, and services. B. stocks, bonds, and other financial instruments. C. final goods and services. D. capital goods, residential housing, and changes in inventories.
In the short run average costs eventually ________ because of diminishing returns, and in the long run average costs eventually ________ because of diseconomies of scale.
A. decrease; decrease B. decrease; increase C. increase; increase D. increase; decrease