According to the Taylor Rule, When the Economy Has a Zero-Unemployment

question 283

Multiple Choice

According to the Taylor rule, when the economy has a zero-unemployment gap and the inflation rate is equal to its target rate of 2 percent, the Fed's targeted interest rate should be

• A) 2 percent, and this implies a real interest rate of 0 percent.
• B) 2 percent, and this implies a real interest rate of 4 percent.
• C) 4 percent, and this implies a real interest rate of 2 percent.
• D) 4 percent, and this implies a real interest rate of 4 percent.

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Definitions:

MIRR

Modified Internal Rate of Return, a measure used to assess the profitability of an investment, accounting for the cost of capital and reinvestment of cash flows.

Terminal Value

The estimated value of a business or project at the end of a forecast period, often used in discounted cash flow analyses.

Non-normal Cash Flows

Cash flow patterns that do not match standard inflow and outflow models, often irregular in amount and timing.

Initial Costs

The upfront expenditures associated with beginning a project, such as fees, equipment purchases, and setup expenses.