Homework Answers
Answer is option B)
as per taylor rule
i = r + π + a(π - π*) + b(y - y*)
r : real interest rate
π* = target interest rate
(y-y*) : output gap
So, from data
When π = 0
i* = 2% + 0 + .5*(0-4%) + 0
i* = 2% - 2%
= 0
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