Multiple Choice
Given the following formula for the Taylor rule: ?Target federal funds rate = natural rate of interest + current inflation + ½(inflation gap) +½(output gap) If the current rate of inflation is 4%, natural rate of interest is 2%, and the target rate of inflation is 2%, and output is 3% above its potential, the target federal funds rate would be: ?
A) 7%.?
B) 8.5%.?
C) 5%.?
D) 4.5%.
Correct Answer:
Verified
Correct Answer:
Verified
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