Assume that the federal funds rate is at its target, 2 percent, output is about 1 percent beneath potential, and inflation is roughly 1.5 percent. If the Taylor rule is accurate, the Fed's desired rate of inflation at this time would be:
A) 1 percent.
B) 2.5 percent.
C) 3.5 percent.
D) 5 percent.
Correct Answer:
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