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

question 25

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 output in the economy were to fall by an additional one percent below potential, the target federal funds rate would: ?

• A) Increase by 1.5%.?
• B) Decrease by 1.5%.?
• C) Remain at 2.5%.?
• D) Decrease by 0.5%.

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