Final answer:
According to the neoclassical model, policy makers cannot achieve permanently higher inflation without higher unemployment, nor can they achieve lower inflation at same level. In response to a negative shock to aggregate demand, an expansionary policy is an appropriate response to stabilize prices.
Step-by-step explanation:
According to the neoclassical model of economics, an expansionary monetary policy that shifts aggregate demand only creates inflationary increase in the price level, but does not affect GDP or unemployment. Therefore, policy makers cannot achieve permanently higher inflation without permanently higher unemployment, nor can they achieve permanently lower inflation at the same level of unemployment.
According to the article, a negative shock to aggregate demand causes a decline in future inflation and a decline relative to its potential. To stabilize prices in this scenario, an appropriate policy response would be an expansionary monetary policy to keep inflation from falling.