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

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.