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36. Determining how to appropriately conduct monetary policy can be challenging for central banks. This is one reason some argue that central banks should follow
36. Determining how to appropriately conduct monetary policy can be challenging for central banks. This is one reason some argue that central banks should follow rules instead of discretionary policy. Suppose the economy faces the following conditions: current inflation equals 2%; the equilibrium real federal funds rate equals 2%, the inflation target equals 3%, and the output gap equals -1%. Calculate the federal funds target rate using the Taylor Rule. Show the formula and all work for full credit. [5 points)
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