Given the Following Formula for the Taylor Rule: Target Federal

question 99

Multiple Choice

Given the following formula for the Taylor rule: Target federal funds rate = 2 + current inflation + ½(inflation gap) +½(output gap)
If the inflation rate in the economy were to fall by 2% below the target inflation rate, the target federal funds rate would:

• A)Decrease by 3.0%
• B)Remain at 2.5%
• C)Decrease by 1.0%
• D)Increase by 1.0%

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