Given the following Taylor rule:
Target federal funds rate = 2 + current inflation + ½(inflation gap) +½(output gap);
Explain what happens to the real interest rate and why it happens, each time inflation increases by 1 percent.

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The Answer of Given the following Taylor rule:
Target federal funds rate = 2 + current inflation + ½(inflation gap) +½(output gap);
Explain what happens to the real interest rate and why it happens, each time inflation increases by 1 percent.

Given the Following Taylor Rule