According to the Taylor Rule, If Inflation Equals 3 Percent

question 106

Multiple Choice

According to the Taylor rule, if inflation equals 3 percent and there is a recessionary gap equal to 3 percent of potential output, the Fed will set a real interest rate of ________ percent and a nominal interest rate of ________ percent.

• A)3; 3
• B)1; 4
• C)1; 3
• D)2; 4