Suppose the equilibrium real federal funds rate is 2 percent, the current inflation rate is 4 percent – 2020 | 2021

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Question: Suppose the equilibrium real federal funds rate is 2 percent, the current inflation rate is 4 percent, the target rate of inflation is 2 percent, and real GDP is 2 percent above 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

Answer: 8 percent

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