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According to the Taylor Rule, if the inflation rate is 3 percent and the GDP gap...

According to the Taylor Rule, if the inflation rate is 3 percent and the GDP gap is 2 percent, what does the federal funds rate target equal?

Group of answer choices

8.5 percent

5.5 percent

3.5 percent

6.5 percent

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Answer #1

Inflation Rate = 3%

GDP Gap = 2%

According to Taylor Rule, what is federal funds rate target?

According to Taylor Rule

Federal Funds Rate Target = 1.5 (Inflation Rate) + 0.5 (GDP Gap) + 1

Federal Funds Rate Target = 1.5 (3) + 0.5 (2) + 1 = 6.5%

Answer will be D) 6.5%

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