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 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.