Current inflation: 4%

Fed's inflation target: 2%

Deviation of aggregate output from potential output: (+) 3%

3. Given that the deviation of aggregate output from potential output is (+) 3%, does the Taylor Rule state that the Federal Funds rate needs to be lowered or raised when calculating the appropriate Federal Funds Rate according to the Taylor Rule? Using economic logic, explain why the Taylor Rule is stating that the Federal Funds rate needs to be lowered or raised when calculating the appropriate Federal Funds Rate according to the Taylor Rule. (at least 1 para)

4. Suppose that the current Federal Funds Rate is 2%. Given your answer to question 1, should the Fed purchase or sell assets? Explain and detail how this will impact the Federal Funds Rate. (at least 1 para )