Figure: Monetary Policy Reference: Ref 16-1 (Figure: Monetary Policy) Assume that the economy is initially at Point Y. If the Fed takes the appropriate action with monetary policy, but overestimates how serious the recession is
A) the Solow growth curve would shift to the left.
B) the Fed would take the economy to Point X.
C) the Fed would fail to stimulate the economy and it would remain at Point Y.
D) the Fed would overshoot and the economy would move to Point W.

Question

Figure: Monetary Policy  Reference: Ref 16-1 (Figure: Monetary Policy) Assume that the economy is initially at Point Y. If the Fed takes the appropriate action with monetary policy, but overestimates how serious the recession is
A) the Solow growth curve would shift to the left. 
B) the Fed would take the economy to Point X. 
C) the Fed would fail to stimulate the economy and it would remain at Point Y. 
D) the Fed would overshoot and the economy would move to Point W.

Quizplus · Accepted Answer

The Answer is D