Consider the Taylor Rule for the Target of the Federal

question 50

Essay

Consider the Taylor rule for the target of the federal funds rate.Suppose the equilibrium real federal funds rate is 2 percent,the target rate of inflation is 3 percent,the current inflation rate is 3 percent,real GDP equals potential real GDP,and the weights are 1/2 for the inflation gap and the output gap.Using the Taylor rule,what does the target for the federal funds rate equal? Next,if the Federal Reserve lowered the target for the inflation rate to 1 percent,how much would the target for the federal funds rate change?

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Definitions:

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short for 'Post Hoc Ergo Propter Hoc', a logical fallacy where one assumes that since event Y followed event X, event X must have caused event Y.

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A reasoning error that leads to a flawed argument.

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