Boblandia produces no oil. It starts at potential GDP with inflation equal to the Central Bank's inflation target. Boblandia then sees a significant increase in the price of oil. Which of the following is true (according to our models) if the Central Bank engages in inflation targeting?

ENGR.ECONOMIC ANALYSIS
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Boblandia produces no oil. It starts at potential GDP with inflation equal to the
Central Bank's inflation target. Boblandia then sees a significant increase in the
price of oil. Which of the following is true (according to our models) if the Central
Bank engages in inflation targeting?
The Central Bank will enact expansionary monetary policy. This action will put upward
pressure on read GDP.
The Central Bank will enact expansionary monetary policy. This action will put
downward pressure on read GDP.
The Central Bank will enact contractionary monetary policy. This action will put
upward pressure on read GDP.
The Central Bank will enact contractionary monetary policy. This action will put
downward pressure on read GDP.
Transcribed Image Text:Boblandia produces no oil. It starts at potential GDP with inflation equal to the Central Bank's inflation target. Boblandia then sees a significant increase in the price of oil. Which of the following is true (according to our models) if the Central Bank engages in inflation targeting? The Central Bank will enact expansionary monetary policy. This action will put upward pressure on read GDP. The Central Bank will enact expansionary monetary policy. This action will put downward pressure on read GDP. The Central Bank will enact contractionary monetary policy. This action will put upward pressure on read GDP. The Central Bank will enact contractionary monetary policy. This action will put downward pressure on read GDP.
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