1. An article in the Wall Street Journal discussing monetary policy noted that when Fed Chair Jerome Powell testified before Congress in March 2019, "there was hardly any reference to policy rules." At the time the article was written, the inflation rate was 1 percent, the federal funds rate was 2.40 percent, and the output gap was 0.Source: Nick

Timiraos,

"Analysis: Five Takeaways from Powell's Congressional Testimony,'" Wall Street

Journal,

March 1, 2019.If we assume that the equilibrium real federal funds rate is 2 percent and the Fed had a target inflation rate of 2 percent, then if Fed policy had been following the Taylor rule, what should the federal funds rate have been?The federal funds rate should have been

enter your response here

percent. (Enter your response rounded to one decimal place.)

2. Suppose that the equilibrium real federal funds rate is

2

percent and the

target rate of inflation

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is

3

percent. Use the following information and the

Taylor rule

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to calculate the federal funds rate target:Current inflation rate =

6

percentPotential real GDP =

$14.69

trillionReal GDP =

$14.97

trillionPart 2The federal funds target rate is

(Enter your response rounded to two decimal places.)