. Assume Yt = 18,000 bi of USD in chained 2009 USD and Ypot (potential RGDP or FE output) = 17,125.5, as well as inflation rate (p) of 6.2% (0.062).

The rule is i=p+ 0.02+ 0.5y+ 0.5 (p- 0.02),

where i is the nominal fed funds rate,p is the inflation rate over the last 4 quarters, the percentage deviation of output from full-employment output. Interpret economically what you found by the Taylor rule and comparing to the current level of interest rates set by the U.S. Federal Reserve based on the FOMC statement above. (5 pts.)

(d) What would happen to i if there were no gaps in both output and inflation? Which should be the level of nominal interest rates set by the FOMC in this case? (5 pts.)