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 4% 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) 9%
C) 5%
D) 4.5%
Correct Answer:
Verified
Correct Answer:
Verified
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