Economics (MindTap Course List)
Solutions
Economics (MindTap Course List)
Suppose the inflation rate is 4 percent and the GDP gap is 5 percent. What is the Taylor rule recommendation for the federal funds rate target?
The federal funds rate target.
It is given that the inflation rate is 4 percent and the GDP gap is 5 percent.
According to the Taylor rule, the federal funds target rate can be calculated using Equation (1) as follows:
The federal funds target rate can be calculated by substituting
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