Given the following formula for the Taylor rule: Target federal funds rate = 2 + current inflation + ½(inflation gap) +½(output gap)
If output in the economy were to fall by an additional one percent below potential, the target federal funds rate would:

Question

Quizplus · Accepted Answer

The Taylor rule suggests that for every 1% decrease in the output gap, the federal funds rate should decrease by 0.5%.

Given the Following Formula for the Taylor Rule: Target Federal