Figure: Monetary Policy and Demand Shocks Reference: Ref 16-2

question 53

Multiple Choice

Figure: Monetary Policy and Demand Shocks Reference: Ref 16-2 (Figure: Monetary Policy and Demand Shocks) The original real growth rate of the economy was 3 percent when a negative aggregate demand shock caused a shift of the AD curve from AD1 to AD2. As a result of the Fed's policy response, the AD curve shifted to AD5 in the short run. Which of the following is TRUE about the Fed's policy response?

• A) The Fed responded too little to the shock.
• B) The Fed responded too much to the shock.
• C) The Fed provided just the right amount of response to the shock.
• D) The Fed was too fast in responding to the shock.

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Definitions:

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