Given the Following Formula for the Taylor Rule: ?Target Federal

question 95

Multiple Choice

 Given the following formula for the Taylor rule: ?Target federal funds rate = natural rate of interest + current inflation + ½(inflation gap) +½(output gap) if the current rate of inflation is 5%, the natural rate of interest is 2%, and the target rate of inflation is 2%, and output is 3% above its potential, the target federal funds rate would be: ?

• A) 6.5%.?
• B) 2.5%.?
• C) 3.5%.?
• D) 10%.