According to the Taylor Rule, If There Is a Recessionary

question 135

Multiple Choice

According to the Taylor rule, if there is a recessionary gap of 3 percent of potential output and inflation is 4 percent, what real interest rate will the Fed set?

• A)1.5 percent
• B)2 percent
• C)2.5 percent
• D)3 percent

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Definitions:

Arteries

Blood vessels that carry oxygenated blood away from the heart to various parts of the body.

Capillary Bed

A network of capillaries, small blood vessels, enabling the exchange of oxygen, carbon dioxide, and nutrients.

Pulmonary Artery

Artery that carries oxygen-poor blood from the heart to a lung.