Suppose the current real federal funds rate in the economy is 2.0%, the current inflation rate is 1.0%, the Federal Reserve's target inflation rate is 2.0%, and the output gap is - 2.0%. According to the Taylor Rule, the Federal Reserve's target federal funds rate should be
A) 4.0%.
B) 4.5%.
C) 5.0%.
D) 5.5%.
Correct Answer:
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