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Suppose the Fed follows the Taylor rule. Suppose the inflation target is 2 percent, the equilibrium real interest rate is 2 percent, the current inflation
Suppose the Fed follows the Taylor rule. Suppose the inflation target is 2 percent, the equilibrium real interest rate is 2 percent, the current inflation rate is 4 percent, the weight on the GDP gap is 0.3, the weight on the inflation gap is 0.7 and nominal GDP is 2 percent above the potential level. What should be the target federal funds rate? If actual output is USD 16 trillion, what is the value of potential output?
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