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ericayi ericayi
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4 weeks ago
Taylor Rules

Suppose the target rate of inflation is 6%, the current inflation rate is 1%, the equilibrium real federal funds rate is 2%, and real GDP is 4% below potential real GDP. If the weights for both the output gap and the inflation gap are 1/2, then according to the Taylor rule the federal funds target rate equals ________. (Round to the nearest tenth when appropriate.)

▸ 2.5%

▸ 5%

▸ -1.5%

▸ -3%
Textbook 

Macroeconomics


Edition: 3rd
Authors:
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munjojmunjoj
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4 weeks ago
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More solutions for this book are available here
-1.5%

The solution to this problem is calculated as: current inflation rate + equilibrium federal funds rate + (0.5 x inflation gap) + (0.5 x output gap).
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