Suppose That the Reserve Bank of New Zealand Is Following

question 13

Multiple Choice

Suppose that the Reserve Bank of New Zealand is following the Taylor rule. In 2009, it sets the official cash rate (the N.Z. equivalent of the overnight loans rate) at 4.0 percent a year. If the inflation rate in New Zealand is 2.0 percent a year, what is its output gap?

• A)0 percent
• B)1 percent
• C)2 percent
• D)3 percent
• E)0.5 percent