According to the Taylor rule, if the current inflation rate is 2.8%, output is 2% below the full-employment level, and the central bank's announced inflation target is 2%, at what level should the central bank set the nominal interest rate?
A)2)8%
B)4)2%
C)5)2%
D)5)8%
E)6)8%

Question

Quizplus · Accepted Answer

The Taylor rule suggests that the central bank should set the nominal interest rate to 2% + 0.5 * (2.8% - 2%) + 0.5 * (2% - 0%) = 4.2%.

According to the Taylor Rule, If the Current Inflation Rate