Employing the New Keynesian Concepts of "Macroeconomic Externality" and "Coordination

Multiple Choice

Employing the New Keynesian concepts of "macroeconomic externality" and "coordination failure": if nominal aggregate demand and marginal cost fall by the same proportion,society ________ afford to compensate firms for the profit they lose when they ________.

A) can,bear the menu costs of changing prices
B) can,hold prices constant
C) cannot,bear the menu costs of changing prices
D) cannot,hold prices constant