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Viktor [21]
2 years ago
5

Suppose the equilibrium real federal funds rate is 3 percent, the target rate of inflation is 3 percent, the current inflation r

ate is 1 percent, and real GDP is 8 percent below potential real GDP. If the weights for the inflation gap and the output gap are both 1/2, then according to the Taylor rule the federal funds target rate equals :_______
A) -3 percent.
B) -1 percent.
C) 3.5 percent.
D) 7 percent
Business
1 answer:
Tresset [83]2 years ago
6 0

Answer:

B) -1 percent.

Explanation:

The computation of the federal fund target rate should be given below;

= Real federal fund rate + current inflation rate + (-current inflation rate - real GDP) + 0.5 real GDP

= 3 + 1 + (-1 - 8) + 0.5 × 8

= 4 - 9 + 4

= -1 percent

Hence, the second option is correct

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