Question
Use the following formula for the Taylor rule target federal funds rate = natural rate of interest + current inflation + (inflation gap) +(output gap)
Use the following formula for the Taylor rule target federal funds rate = natural rate of interest + current inflation + (inflation gap) +(output gap) to determine the change in the target federal funds rate for every one percent increase in the rate of inflation. This will
a. increase the target federal funds rate by 1.5 percent
b. increase the target federal funds rate by 1.5 percent and increase the real federal funds rate by 0.5 percent.
c. increase the real federal funds rate by 1.5 percent.
d.increase the real federal funds rate by 0.5 percent.
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