Using the Taylor Rule, If Inflation Is 3 Percent, Desired

question 210

Multiple Choice

Using the Taylor rule, if inflation is 3 percent, desired inflation is 2 percent, and output is 2 percentage points above potential, the Fed should target a federal funds rate of:

• A)6.5.
• B)4.5.
• C)3.5.
• D)3.0.

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