Based on the Given Figure, the Economy Is Initially at Point

question 49

Multiple Choice

Based on the given figure, the economy is initially at point A on the monetary policy reaction function (RF₁) and the aggregate demand curve (AD₁) . The actual rate of inflation is π' and the Federal Reserve's target inflation rate is π*₁.  
If the Federal Reserve lowers its target inflation rate to π*₂, then the Federal Reserve's monetary policy reaction function will ________ and the aggregate demand curve will ________.

• A)shift to RF₃; shift to AD₂
• B)shift to RF₂; shift to AD₂
• C)shift to RF₃; shift to AD₃
• D)shift to RF₂; shift to AD₃

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Definitions:

Bad Debts

Accounts receivable that a company does not expect to collect and therefore writes off as a loss.

Allowance for Doubtful Accounts

A contra-asset account that estimates the portion of accounts receivable which may never be collected.

Collections

The process of pursuing payments of debts owed by individuals or businesses, typically involving accounts receivable teams or collection agencies.

Selling Goods on Account

The process of selling merchandise to a buyer where payment is to be made at a future date as agreed.