Given the Following Taylor Rule

question 96

Essay

 Given the following Taylor rule:
Target federal funds rate = natural rate of interest + current inflation + ½(inflation gap) +½(output gap)
Explain what happens to the real interest rate and why it happens, each time inflation increases by 1 percent. 

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Definitions:

Analytics

The systematic computational analysis of data or statistics, used for the discovery, interpretation, and communication of meaningful patterns in data.

Decision Making

The process of selecting a course of action from several alternatives to achieve a desired outcome.

Evidence-Based Management

An approach to making managerial decisions and organizational practices grounded in the best available scientific evidence.

Good Evidence

Reliable and relevant information or facts that support a conclusion, decision, or belief.