Use the Following to Answer Questions 50-54

question 39

Multiple Choice

Use the following to answer questions 50-54:
Figure: Monetary Policy and Demand Shocks
-(Figure: Monetary Policy and Demand Shocks) Refer to the figure.In the figure,assume the initial real growth rate of the economy is 3% when a negative aggregate demand shock shifts the AD curve from AD₁ to AD₃.As a result of the Fed's policy response,the AD curve shifts to AD₂ 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:

Marginal Utilities

The supplementary pleasure or value a consumer secures by acquiring one more unit of a product or service.

Total Utility

The total satisfaction or benefit that a consumer receives from consuming a given quantity of goods or services.

Current Consumption

The amount of goods and services consumed by individuals or households in the present period.

Marginal Utility

Additional contentment or usefulness achieved through the use of one more unit of a good or service.