Using the Taylor Rule, If Inflation Is 1 Percent, Desired

question 166

Multiple Choice

Using the Taylor rule, if inflation is 1 percent, desired inflation is 2 percent, and output is 2 percentage points below potential, the Fed should target a federal funds rate of:

• A)6.5.
• B)4.5.
• C)2.5.
• D)1.5.

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Definitions:

Quantity Demanded

The total amount of a good or service that consumers are willing and able to buy at a specific price.

Price

The amount of money expected, required, or given in payment for something.

Demand Curves

Graphical representations that depict the relationship between the price of a product and the quantity of that product consumers are willing to purchase at various price points.

Baby Formula

A manufactured food designed and marketed for feeding to babies and infants, usually prepared for bottle-feeding or cup-feeding from powder or liquid.