Answered: If the Fed is following the "benchmark…

If the Fed is following the "benchmark Taylor Rule", and the equilibrium real interest rate is 4%, what will the equilibrium inflation rate be? (Note that in equilibrium, the output gap is 0)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

If the Fed is following the "benchmark
Taylor Rule", and the equilibrium real
interest rate is 4%, what will the equilibrium
inflation rate be? (Note that in equilibrium,
the output gap is 0)
A. 0% B. 2% C. 4% D. 6% E. 8% or higher

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