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

[cool]

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.

Question 2

In real business cycle models, shifts of the aggregate demand curve ________.
 
  A) cause changes in inflation, but have no effect on output
  B) cannot occur
  C) result from changes in the willingness to work
  D) result from Solow residuals

[aburgess]

Answer to Question 1

D

Answer to Question 2

A

[cool]

Thanks for the timely response, appreciate it

[raenoj]

Great answer, keep it coming