Suppose that inflation is 2 percent, the Federal funds rate is 4 percent, and real GDP falls 2 percent below potential GDP. Acording to the Taylor rule, in what direction and by how much should the Fed change the real Federal funds rate? According to the Taylor rule, the Fed should increase the Federal funds rate by 6.5 percentage point.

Suppose that inflation is 2 percent, the Federal funds rate is 4 percent, and real GDP falls 2 percent below potential GDP. Acording to the Taylor rule, in what direction and by how much should the Fed change the real Federal funds rate? According to the Taylor rule, the Fed should increase the Federal funds rate by 6.5 percentage point.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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