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Given the Following Formula for the Taylor Rule: Target Federal

Question 129

Multiple Choice

Given the following formula for the Taylor rule: Target federal funds rate = 2 + current inflation + ½(inflation gap) +½(output gap)
If the current rate of inflation is 5% and the target rate of inflation is 2%, and output is 3% above its potential, the target federal funds rate would be:


A) 6.5%
B) 2.5%
C) 3.5%
D) 10.5%

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