The Taylor Rule Is 2 + Inflation Rate + 1/2

question 203

Multiple Choice

The Taylor rule is 2 + inflation rate + 1/2 output gap + 1/2 inflation gap. If inflation is 3%, output gap is 1%, and the inflation gap is 1%, the target interest rate is:

• A) 4%
• B) 5%
• C) 6%
• D) 7%

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