Which of the Following Correctly States a Fundamental Result of Modern

question 8

Multiple Choice

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.

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Definitions:

Stabilization Policy

Economic strategies and actions taken by governments or central banks to stabilize an economy, aiming to reduce fluctuations in the business cycle and ensure steady growth.

Weather The Storm

A metaphor describing the ability to endure or survive through difficult or challenging times.

Time Inconsistent

When preferences change over time in such a way that what is preferred at one point in time is inconsistent with what is preferred at another time.

Central Bankers

Officials responsible for controlling a country's money supply and monetary policy, often through a central bank.