Suppose that the equilibrium real federal funds rate is 2.75% and the target inflation rate is 1.75%. If the current inflation is 4.25%, potential GDP is $105 billion, the current level of GDP is $103.5 billion, use the Taylor rule to find the federal funds rate that the Fed should choose.
Suppose that the equilibrium real federal funds rate is 2.75% and the target inflation rate is 1.75%. If the current inflation is 4.25%, potential GDP is $105 billion, the current level of GDP is $103.5 billion, use the Taylor rule to find the federal funds rate that the Fed should choose.
Chapter15: Monetary Policy
Section15.4: Nonactivist Monetary Proposals
Problem 2ST
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Suppose that the equilibrium real federal funds rate is 2.75% and the target inflation rate is 1.75%. If the current inflation is 4.25%, potential
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