Ask Question
10 December, 11:32

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 4 percent Real equilibrium federal funds rate 2 percent Output gap 8 percent In this case, the Federal funds target rate is: nothing percent. (Round your solution to one decimal place.)

+4
Answers (1)
  1. 10 December, 15:19
    0
    Target funds rate = 7.5%

    Explanation:

    The target Federal funds rate is calculated as:

    Target funds rate = Real equilibrium Federal funds rate + current inflation + 0.5 (inflation gap) + 0.5 (output gap).

    (Inflation gap = Current inflation rate - Target inflation rate)

    So, Target funds rate = 2 + 1 + 0.5 (1 - 2) + 0.5 (10)

    = 3 + 0.5 (-1) + 5

    = 3 - 0.5 + 5

    = 7.5

    Therefore, Target funds rate = 7.5%
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