Suppose the Inflation Rate Is 3 Percent and the Output

question 108

Multiple Choice

Suppose the inflation rate is 3 percent and the output gap is -1 percent.Assuming the equilibrium real interest rate is 2 percent,using the Taylor rule,what target should the Fed set for the federal funds rate?

• A) 5 percent
• B) 6 percent
• C) 4 percent
• D) 1 percent

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Definitions:

Loosely Defined Norms

Social rules that are not strictly enforced or are vague in nature, often leading to varied interpretations.

Substantial Number

A phrase referring to a significant or considerable amount or quantity of something.

Collectivity

A term referring to a group or assembly of individuals who share common interests, values, or goals, acting together as a unified entity.

Collective Behaviours

Behaviours that occur when people come together to achieve a meaningful short-term goal.