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

question 63

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 4%, 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) 7%.?
• B) 8.5%.?
• C) 5%.?
• D) 4.5%.

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