Using the Simple Monetary Rule, If the Inflation Rate Is

question 21

Multiple Choice

Using the simple monetary rule, if the inflation rate is 2 percent below the target inflation rate and the marginal product of capital is 1 percent, the Federal Reserve will:

• A) lower the target rate by 2 percent.
• B) raise the interest rate by 1 percent.
• C) lower the interest rate by 1 percent.
• D) lower the discount rate by 1 percent.
• E) Not enough information is given.

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