If the Fed Overreacts to a Negative Spending Shock by Increasing

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.