According to the Taylor rule, if the target rate of inflation for the Fed is 2 percent and real GDP rises by 1 percent above potential GDP, then the Fed should

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The Taylor rule suggests adjusting the federal funds rate based on deviations of actual inflation from the target and real GDP from potential GDP. A 1% rise in GDP above potential typically calls for a 0.5% increase in the rate.

According to the Taylor Rule, If the Target Rate of Inflation