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Suppose that in the economy of Moneyland, the rate of inflation is currently 3% but the target is 2%.The real federal funds rate is 2.5%.The
Suppose that in the economy of Moneyland, the rate of inflation is currently 3% but the target is 2%.The real federal funds rate is 2.5%.The current level of real GDP is $9 trillion, but full employment GDP is $10 trillion. According to the Taylor Rule as presented in Class 16, what is the optimal level for the federal funds rate?Show your work and explain.What happens if real GDP increases to $10 trillion?
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