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

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

Correct Answer:

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