The Next Questions Refer to the Following

question 7

Multiple Choice

The next questions refer to the following.
Suppose the central bank follows the Taylor Rule
nominal interest rate = .03 + .5(output gap) + 1.5(inflation rate - .02) .
-The real interest rate will be approximately

• A) -.01
• B) .02
• C) .025
• D) .05
• E) .07

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Definitions:

Tax Cuts

Reductions in the amount of taxes that individuals or corporations are required to pay to the government.

Government's Plan

A systematic arrangement of actions or strategies designed by a government to achieve specific outcomes or objectives.

Softening Economy

A term used to describe an economic state where growth is slowing down, signaling a potential downturn or lesser economic activity.

Government Spending Multiplier

A coefficient that measures the change in total income resulting from a unit change in government spending.