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31) The assumption that people may choose to hold excess money balances when there is an increase in the money supply is emphasized by A) supply-side economists. B) Monetarists. C) Keynesians. D) rational expectations theorists. 32) Monetarists have argued that since velocity __________, this shows that shifts to the investment demand function must __________. A) is rather stable; cause the private economy to be unstable B) is rather stable; be offset by interest rate changes C) moves counter-cyclically; cause the private economy to be unstable D) moves counter-cyclically; be offset by interest rate changes 33) A relatively steep aggregate demand curve indicates that A) velocity is relatively constant. B) the economy is near full employment. C) inflation is relatively high. D) spending is sensitive to changes in the price level. 34) A Classical aggregate supply curve is A) vertical. B) upward-sloping. C) horizontal. D) downward-sloping. 35) Keynesian picture the aggregate demand curve as rather __________, partly because interest rates may be __________ to changes in the real money supply. A) flat; highly responsive B) flat; quite unresponsive C) steep; highly responsive D) steep; quite unresponsive 36) When the aggregate demand curve shifts to the left against a vertical aggregate supply curve, the price level should __________ unless, as __________ argue, prices may have rigidities. A) fall; Keynesians B) fall; Monetarists C) rise; Keynesians D) rise; Monetarists 37) When the aggregate demand curve shifts to the left, real GDP falls unless the aggregate supply curve is A) horizontal. B) upward-sloping. C) vertical. D) upward-sloping or vertical. 38) To Keynesians, a vertical aggregate supply curve A) is nonsensical. B) holds in the short run but not the long run. C) holds in the long run but not the short run. D) will only be encountered at the full-capacity output of the economy. 39) Suppose a shift of aggregate demand pushes the economy “southwest” away from full employment in the aggregate demand and supply diagram. Monetarists would recommend returning to full employment by A) raising the money supply. B) lowering the money supply. C) waiting for the price level to rise. D) waiting for the price level to fall.

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