1.If the maximum potential combination of consumer and capital goods produced by an economy has increased over time, which of the following is true? (A or C?)

a. Marginal tax rates have increased due to contractionary fiscal policy

b. Keynesian policy initiatives have allowed for increased consumption of both consumer and capital goods

c. New physical capital has been introduced to firms throughout the economy

d. Resources are being utilized inefficiently at this combination of goods and services

e. Monetary policy authorities have effectively decreased bank reserves through open market operations

2.Which of the following is one of the factors which describes why the price and quantity demanded for a product are inversely related? (A or D?)

a. The consumption effect

b. The wealth effect

c. The input effect

d. The trade effect

e. The misperceptions theory.