Use the Following to Answer Questions 50-54

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.

Correct Answer:

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