Suppose that the equilibrium real federal funds rate is 6 percent and the target rate of inflation is 3 percent. Use the following information and the Taylor rule to calculate the federal funds rate target: Current inflation rate = 3 percent Potential real GDP = $14.66 trillion Real GDP $14.14 trillion The federal funds target rate is%. (Enter your response rounded to two decimal places.)

Suppose that the equilibrium real federal funds rate is 6 percent and the target rate of inflation is 3 percent. Use the following information and the Taylor rule to calculate the federal funds rate target: Current inflation rate = 3 percent Potential real GDP = $14.66 trillion Real GDP $14.14 trillion The federal funds target rate is%. (Enter your response rounded to two decimal places.)

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Concept explainers

Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.

Question

A25

Subject - economics

Suppose that the equilibrium real federal funds rate is 6 percent and the target rate of inflation is 3 percent. Use the following information and the Taylor rule to calculate the
federal funds rate target:
Current inflation rate = 3 percent
Potential real GDP = $14.66 trillion
Real GDP = $14.14 trillion
The federal funds target rate is%. (Enter your response rounded to two decimal places.)

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