Which of the following correctly states a fundamental result of modern macroeconomic theory?
A) Aggregate demand shocks can be nullified by policy-induced adjustments in aggregate demand of equal size in the opposite direction.
B) Price shocks require the policy maker to weigh the social costs of inflation and unemployment to select the appropriate mix.
C) Aggregate demand shocks require the policy maker to weigh the social costs of inflation and unemployment to select the appropriate mix.
D) Price shocks can be nullified completely by appropriate manipulation of aggregate demand by monetary and fiscal policy.
E) a and b only.
Correct Answer:
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