Suppose that actual inflation is 4 percent, the Fed's inflation target is 2 percentage points, and unemployment rate is 2 (which is 2 percent below the Fed's full- employment target of 4 percent). According to the Taylor Rule, what value will the Fed want to set for its targeted interest rate?

Suppose that actual inflation is 4 percent, the Fed's inflation target is 2 percentage points, and unemployment rate is 2 (which is 2 percent below the Fed's full- employment target of 4 percent). According to the Taylor Rule, what value will the Fed want to set for its targeted interest rate?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Suppose that actual inflation is 4 percent,
the Fed's inflation target is 2 percentage
points, and unemployment rate is 2 (which
is 2 percent below the Fed's full-
employment target of 4 percent). According
to the Taylor Rule, what value will the Fed
want to set for its targeted interest rate?

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