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Using the Taylor Rule, If Inflation Is 1 Percent, Desired

Question 96

Multiple Choice

Using the Taylor rule, if inflation is 1 percent, desired inflation is 2 percent, and output is 2 percentage points above potential, the Fed should target a federal funds rate of:


A) 6.5.
B) 4.5.
C) 3.5.
D) 3.0.

Correct Answer:

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