If the Fed's Policy Reaction Function Equals R = $\pi$ , Where R Is the Real Interest Rate

question 79

Multiple Choice

If the Fed's policy reaction function equals r = .02 + $\pi$ , where r is the real interest rate, $\pi$ is the inflation rate. When the inflation rate is at the current target of 2%, then the real interest rate will be set at:

• A) 2%.
• B) 6%.
• C) zero.
• D) 4%

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