Question
Suppose the economy is in general equilibrium with a zero inflation gap when the central bank decides to increase its target inflation rate. In order
Suppose the economy is in general equilibrium with a zero inflation gap when the central bank decides to increase its target inflation rate. In order to achieve its new inflation target, the central bank would then conduct a discretionary monetary policy:
Tightening, increasing the real interest rate for any given inflation.
None of the above.
Easing, allowing the real interest rate to increase along with the increase in aggregate demand.
Tightening, allowing the real interest rate to increase along with the increase in aggregate demand.
Easing, increasing the real interest rate for any given inflation.
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