Ask Question
26 January, 05:33

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

Variable Value Target inflation rate: 2 percent

Current inflation rate : 10 percent

Real equilibrium federal funds rate : 2 percent

Output gap: 8 percent

Question: In this case, the Federal funds target rate is: (Round your solution to one decimal place.)

+4
Answers (1)
  1. 26 January, 06:47
    0
    Based on the Taylor Rule, the formula for calculating the Federal target rate is:

    Federal funds rate target = equilibrium real federal funds rate + inflation rate + 1/2 (output gap) + 1/2 (inflation gap)

    We are given that:

    equilibrium real federal funds rate = 2%

    inflation rate = 10%

    output gap = 8%

    inflation gap = 10% - 2% = 8%

    Substituting to the equation:

    Federal funds rate target = 2% + 10% + 0.5*8% + 0.5*8%

    Federal funds rate target = 20%
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Based on the Taylor Rule use the following information to calculate the target federal funds rate. Variable Value Target inflation rate: 2 ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers