The Taylor rule is 2 + inflation rate + 1/2 output gap + 1/2 inflation gap. If inflation is 3%, output gap is 1%, and the inflation gap is 1%, the target interest rate is:

Name: The Taylor rule is 2 + inflation rate + 1/2 output gap + 1/2 inflation gap. If inflation is 3%, output gap is 1%, and the inflation gap is 1%, the target interest rate is:
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Quizplus · Accepted Answer

The Taylor rule formula is: 2 + 3% (inflation rate) + 0.5 * 1% (output gap) + 0.5 * 1% (inflation gap) = 6%.

The Taylor Rule Is 2 + Inflation Rate + 1/2