Use the Following to Answer Questions 50-54

question 208

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 AD₂.As a result of the Fed's policy response,the AD curve shifts 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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