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Suppose the Equilibrium Real Overnight Interest Rate Is 2 Percent

Question 278

Multiple Choice

Suppose the equilibrium real overnight interest rate is 2 percent, the target rate of inflation is 2 percent, the current inflation rate is 4 percent, and real GDP is 2 percent above potential real GDP.If the weights for the inflation gap and the output gap are both 1/2, then according to the Taylor rule the overnight interest target rate equals


A) 2 percent.
B) 4 percent.
C) 6 percent.
D) 8 percent.
E) 10 percent.

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