The new chairman of the Ionian Central Bank $($ICB$)$ is preparing for her first board meeting. She is expected to recommend a monetary policy for the board to pursue. She decides to use the Taylor rule, which was originally developed for the U$.$S$.$ Federal Reserve.

Ionia's potential GDP is $100$ million drachma, but current GDP is $94$ million. What is Ionia's output gap?

Ionia's output ga$]$

Incorrect

Inflation is running at $5\%,$ but the chairman considers an inflation rate of $2\%$ to be a reasonable goal. What is Ionia's inflation gap?

Ionia's inflation ga

$\%$

The Taylor rule helps the chairman to determine the target

inflation rate.

fed funds rate