If the Fed Overreacts to a Negative Spending Shock by Increasing

question 124

Multiple Choice

If the Fed overreacts to a negative spending shock by increasing money growth too much:

• A) both real GDP growth and inflation will decrease more than the Fed prefers.
• B) both real GDP growth and inflation will increase more than the Fed prefers.
• C) real GDP growth will increase more and inflation will increase less than the Fed prefers.
• D) real GDP growth will increase less and inflation will increase more than the Fed prefers.

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