Suppose the Equilibrium Real Interest Rate Is 2 Percent Per

question 150

Multiple Choice

Suppose the equilibrium real interest rate is 2 percent per year, inflation is 2.5 percent and the output gap is 1 percent. Using the Taylor rule, what is the federal funds rate?

• A) 3 percent
• B) 3.5 percent
• C) 5.5 percent
• D) 5.25 percent

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