During the 1970s the US experienced a period of stagflation, i.e., high and rising inflation and rising unemployment rates.John Taylor had not yet formulated what became known as the Taylor rule and the FED had been targeting interest rates.Given the following information determine the nominal fed funds target rate:real GDP=$8 T, potential real GDP=$8.4 T,inflation=9%, inflation target = 4%, equilibrium real fed funds rate = 2%.

a. Fed funds target=______________

b.Suggest a monetary policy or policies that would allow the FED to reach their target.

c.Suppose that after one year, the inflation rate falls to 6%, real GDP increases to $8.3 T and potential real GDP equals 8.6 T with everything else constant.Determine the new fed funds target rate3.