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Consider the following Taylor rule for the real interest rate. r = 0.02 + 0.5 + 0.5 [(y-y*)/y*] If the inflation rate (expressed as a
Consider the following Taylor rule for the real interest rate. r = 0.02 + 0.5 + 0.5 [(y-y*)/y*] If the inflation rate (expressed as a decimal) is 0.07, y = 105 and y* = 100, what are the approximate values of the real and nominal interest rates implied by the Taylor rule and the Fisher effect, respectively? Express interest rates and inflation in decimal form when answering this question. Question 14 Answer a. None of the options in this question b. 0.15 and 0.08 c. 0.12 and 0.05 d. 0.08 and 0.15 e. 0.05 and 0.12 f. 0.11 and 0.035 g. 0.035 and 0.11
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