According to the Taylor rule, if the Federal Reserve tries to target inflation near 2%, the inflation rate is 3%, and output is 1.3% above potential GDP, the target federal funds rate is 6.15%.

Question

Quizplus · Accepted Answer

The Taylor rule suggests that the target federal funds rate should be set at 2% plus the inflation rate plus 0.5 times the output gap. In this case, the inflation rate is 3%, the output gap is 1.3%, so the target federal funds rate should be 6.15%.

According to the Taylor Rule, If the Federal Reserve Tries