The aggregate demand curve shifts to the left when the Fed:
A. decreases its target inflation rate, reflected by an upward shift in the Fed's policy reaction function.
B. decreases real interest rates in response to inflation, but does not change its target inflation rate or the Fed's policy reaction function.
C. increases its target inflation rate, reflected by a downward shift in the Fed's policy reaction function.
D. increases real interest rates in response to inflation, but does not change its target inflation rate or the Fed's policy reaction function.
Answer: A
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