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

question 95

Multiple Choice

Figure: Monetary Policy and Demand Shocks Reference: Ref 16-2 (Figure: Monetary Policy and Demand Shocks) The real growth rate in this economy is 3 percent when a positive aggregate demand shock shifts the AD curve from AD1 to AD4. The correct monetary policy response is to

• A) reduce money supply growth, so that the AD curve shifts back to AD1.
• B) reduce money supply growth, so that the AD curve remains at AD4.
• C) increase money supply growth, so that the AD curve shifts to AD3.
• D) increase money supply growth, so that the AD curve shifts to AD5.

---

Definitions:

Synthesis

The combination of ideas, data, or methods from different sources to create a new understanding or approach.

Technical Terms

Specialized words or phrases used in a specific field that may not be understood outside of that context.

Ramifications

The consequences or outcomes that result from a particular action or event, often complex or unexpected.

Technical Errors

Mistakes or problems that occur in the process of executing a technical task or operation, often related to machinery, computers, or specific techniques.