If the current inflation is 2.5 %, the inflation gap in the Federal Reserve objective function...
If the current inflation is 2.5 %, the inflation gap in the Federal Reserve objective function will be
a. 0.5%
b. -0.5%
c. 2%
d. 3.5%
e. need more information to decide
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Homework Answers
The federal reserve bank generally recommends inflation rate to be 2%.
If it is lower than it then economy has to suffer from the deflation when inflation rate Is very high
The federal open market committee (FOMC) tries to maintain it over the medium term
So here the gap is 2-2.5= -0.5%
Therefore option B.
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