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What does the Taylor rule imply that policymakers should do to the fed funds rate under the following scenarios? 1. Unemployment rises due to a
What does the Taylor rule imply that policymakers should do to the fed funds rate under the following scenarios?
1. Unemployment rises due to a recession, which leads to 3% decline of GDP (outputs). The target inflation rate (real Fed Funds Rate) is elevated by 1%.
2. A food price shock due to the floods causes the inflation rate to rise by 2% and GDP (output) to fall by 2%.
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