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

question 12

Multiple Choice

Suppose the inflation rate target is zero and the long-run federal funds target is also zero.If the federal funds rate set using the Taylor rule is 1.5 percent and inflation rate is 3 percent,the output gap is ________.

• A) −6 percent
• B) 1.5 percent
• C) 4.5 percent
• D) 6 percent

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Definitions:

Decision Making

The method of selecting options through pinpointing a decision, accumulating data, and evaluating different solutions.

Category Type

A classification that groups items or transactions with similar characteristics for organizational or reporting purposes.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a snapshot of its financial condition.

Owners' Equity

The residual interest in the assets of an entity after deducting liabilities, representing the owners' claims on the business assets.