Macroeconomics
Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 15.4, Problem 2ST
To determine

The federal funds rate target.

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Use the Taylor rule to determine the target federal funds rate if current inflation is 2% and real GDP is 1% below potential.
Suppose the actual federal funds rate is equal to the rate implied by a particular inflation goal. In this situation, the Taylor rule implies that
If the Federal Reserve tries to target inflation near 2%, the inflation rate is 3%, and output is 3% below potential GDP, then the target federal funds rate according to the Taylor rule is: Group of answer choices 3%. 4%. 5%. 6%.
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