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Consider the Taylor rule for the target of the federal funds rate. Suppose the equilibrium real fede

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Consider the Taylor rule for the target of the federal funds rate. Suppose the equilibrium real fede

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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Essentials of Economics

Edition: 4^th

Authors: Hubbard, O'Brien

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Tidy Author

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8 years ago

Correct

Cdfields

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Helped a lot

dri

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Thanks for your help!!

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