Consider the following data for the U.S. economy:

• consumer price index (percentage change from year ago) = 1.2

• real GDP (billion dollars) = 14,542

• real potential GDP (billion dollars) = 15,372

• long term real interest rate (percent) = 2.0

• inflation target (percent) = 2.0

  1. (10 marks) Using the data, find the nominal short term rate that would be predicted by the Taylor Rule. Assume that the weights on inflation and output stabilization are both equal to 0.5.