Current inflation: 4%

Fed's inflation target: 2%

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

Answer the following questions by utilizing the information above:

1. Given the information provided, what should the Federal Funds Rate be according to the Taylor Rule?show calculations.( preferably on paper and clear handwriting so I can understand )

2. Given that current inflation is greater than the Fed's target rate of inflation, does the Taylor Rule state that the Federal Funds Rate should 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 par)