Use the following Taylor rule to calculate what would happen to the real interest rate if inflation increased by 3 percentage points. Target federal funds rate = 2 + Current inflation + 1/2 (Inflation gap) + 1/2(Output gap)

Instructions: Round your answers to one decimal place.

If inflation goes up by 3 percentage points, the target federal funds rate goes up by ? percentage points ( ? percentage points due to the direct impact of inflation and another ? percentage points due to an increase in the inflation gap). According to the Fisher equation, if the nominal rate increased by ? percentage points and inflation increased by ? percentage points, the real interest rate must have increased by ? percentage points.