Multiple Choice
Given the following formula for the Taylor rule: Target federal funds rate = 2 + current inflation + ½(inflation gap) +½(output gap)
If output in the economy were to fall by an additional one percent below potential, the target federal funds rate would:
A) Increase by 1.5%
B) Decrease by 1.5%
C) Remain at 2.5%
D) Decrease by 0.5%
Correct Answer:
Verified
Correct Answer:
Verified
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