Suppose the equilibrium real federal funds rate is 5 percent, the target rate of inflation is 3 percent, the current inflation rate is 5 percent, and real GDP is 4 percent above potential real GDP. If the weights for the inflation gap and the output gap
are both 1/2, then according to the Taylor rule the federal funds target rate equals
A) 1 percent.
B) 9 percent.
C) 13 percent.
D) 17 percent.
Answer: C
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