Suppose the Economy Is Thought to Be 1 Percent Below

Suppose the economy is thought to be 1 percent below potential (i.e., the output gap is −1 percent) , when potential output grows 4 percent per year.Suppose the Fed is following the Taylor rule, with an inflation rate of 4 percent over the past year.The equilibrium real fed funds rate is 3 percent and the weights on the output gap and inflation gap are 0.5 each.The federal funds rate is 8.5 percent.What is the inflation target?

A) 0 percent
B) 1 percent
C) 2 percent
D) 3 percent