Assume That the Bank of Canada Has a Target Inflation

question 31

Multiple Choice

Assume that the Bank of Canada has a target inflation rate of 2% and that the values for how much the nominal target overnight rate responds to a deviation of inflation from its target,g,and how much the nominal target overnight rate responds to real GDP,h,are both 0.5.According to the Taylor rule,if inflation increases by 6%,the real interest rate will increase by

• A) 3%.
• B) 4%.
• C) 6%.
• D) 9%.

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