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:

Foreign Currency Risk

The possibility of losing value due to changes in the exchange rate between two currencies.

Fair-value Hedge

A strategy used in accounting to mitigate the risk of changes in the fair value of an asset, liability, or firm commitment through derivative contracts.

Cash-flow Hedge

A hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with an asset or liability or a forecasted transaction.

Purchase Order

An official document issued by a buyer committing to pay the seller for the sale of specific products or services.