Neverland is experiencing an economic boom and is growing very fast. Stock and housing prices are surging, unemployment is very low and inflation starts to pick up. Policymakers are worried that the economy is overheated and is heading towards a recession. In Neverland, the central bank is responsible for monetary and exchange-rate policy, while the treasury is responsible for fiscal policy. They hire you as a consultant to help them design economic policy. One day you meet with the governor of the central bank, and you both agree that the interest rates are too low, and it is necessary to increase them to cool down asset markets and curb inflation. You advise that the central bank should increase the policy interest rate from the current 4%. The governor agrees with your suggestion and asks you to use the following Taylor rule to set the new interest rate: