According to the Taylor rule what is the federal funds target rate under the following conditions? follows Equilibrium real federal funds rate equals 2 % follows Target rate of inflation equals 2 % follows Current inflation rate equals 1 % follows Real GDP is 1 % below potential real GDP The federal funds target rate equals nothing %. (Enter your response rounded to one decimal place.)

Question

Jaiden Burgess

Business

11 August, 16:16

According to the Taylor rule what is the federal funds target rate under the following conditions? follows Equilibrium real federal funds rate equals 2 % follows Target rate of inflation equals 2 % follows Current inflation rate equals 1 % follows Real GDP is 1 % below potential real GDP The federal funds target rate equals nothing %. (Enter your response rounded to one decimal place.)

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Answers (1)

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Katelynn · Answer 1

1%

Explanation:

Taylor's rule formula is as follow:

Target rate = Neutral rate + 0.5 x (Expected GDP growth rate - Long-term GDP growth rate) + 0.5 x (Expected Inflation rate - Target inflation rate)

Target rate = 2% + 0.5 x (-1%) + 0.5 x (1% - 2%)

Target rate = 1%