Based on targets for inflation and overall economic growth rate and on actual observations of inflation and economic growth rates, apply the Taylor rule to estimate

what short-term interest rate level should be an appropriate target for monetary authorities.

A)Estimate what short-term interest rate level should be an appropriate target for monetary authorities. Show your calculations.

B)Explain why the monetary action suggested by the Taylor rule output may not actually be taken by the central bank authorities.

Economic Measures GDP Trend/Inflation Target Forecast 3.20% 2.60% Year-over-year increase in GDP Inflation rate Shor-term interest rate (neutral value) 2% 4% 4%