Based on the Taylor Rule use the following information to calculate the target federal funds rate

Economics Dec 17, 2020

Based on the Taylor Rule use the following information to calculate the target federal funds rate. Variable Target inflation rate Current inflation rate Real equilibrium federal funds rate Output gap Value 2 percent 10 percent 2 percent 2 percent In this case, the Federal funds target rate is: percent. (Round your solution to one decimal place.)

Expert Solution

Federal funds target rate =actual inflation rate+real equilibrium fund rate+0.5(actual inflation rate-target inflation rate) +0.5(output gap)

=10+2+0.5(10-2)+0.5(2)

=12+4+1

=17

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