Suppose the Inflation Rate Target Is Zero and the Long-Run

question 86

Multiple Choice

Suppose the inflation rate target is zero and the long-run federal funds target is also zero.Calculate the federal funds rate if the current inflation rate is 5 percent and real output is 4.5 percent below the trend output level.

• A) 2.25 percent
• B) 0.5 percent
• C) 5.25 percent
• D) 0.25 percent