If the Fed overshoots when responding to a negative demand shock:
A. it will cause deflation, which the Fed will fight by reducing the growth rate of the money supply.
B. it will cause inflation, which the Fed will fight by increasing the growth rate of the money supply.
C. it will cause inflation, which the Fed will fight by reducing the growth rate of the money supply.
D. it will cause deflation, which the Fed will fight by increasing the growth rate of the money supply.
Ans: C. it will cause inflation, which the Fed will fight by reducing the growth rate of the money supply.
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