Given the following formula for the Taylor rule: ?Target federal funds rate = natural rate of interest + current inflation + ½(inflation gap) +½(output gap) ?Every one percent increase in the rate of inflation will: ?
A) increase the real federal funds rate by 1.5%.?
B) increase the target federal funds rate by 1.5%.?
C) increase the real federal funds rate by 0.5%.?
D) increase the target federal funds rate by 1.5% and increase the real federal funds rate by 0.5%.
Correct Answer:
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