Y6

8. In 2018 U.S. inflation was 2.1% and output was 4.8% below its long-run potential. Three years later, in 2021, U.S. inflation fell to 0.4% due to falling energy prices, and output improved to 1.8% below its long-run potential. a. If the inflation target is 2%, what was the federal funds target in 2018 using the Taylor rule? b. If the actual federal funds rate was 0.1% in 2018, did the Taylor rule estimate the target accurately? C. Again, assuming an inflation target of 2%, what was the federal funds target in 2015 using the Taylor rule? d. If the actual federal funds rate was 0.4% in 2018, did the Taylor rule do a better job predicting interest rates compared to 2021? Explain your