Deficits financed by borrowed money lead to inflation, and in a fixed or crawling peg exchange rate system, this leads to the real exchange rate being undervalued

If the minimum reserve ratio is 20 percent, then $1 of reserves can support a maximum of $10 more in transactions deposits.

Answer the following statement true (T) or false (F)

Based on the figure below, 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 ?' and the Federal Reserve's target inflation rate is ?*1. If the Federal Reserve lowers its target inflation rate to ?*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 RF2: shift to AD3 D. shift to RF3: shift to AD3