According to the Taylor rule, when real GDP is equal to potential GDP and the inflation rate is equal to its target rate of 2 percent, the Federal funds rate should be

Question

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The Taylor rule suggests that when real GDP equals potential GDP and inflation is at its target, the nominal interest rate should be set at the sum of the real interest rate (typically 2%) and the inflation rate (2%), resulting in a nominal rate of 4%.

According to the Taylor Rule, When Real GDP Is Equal