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Business, 15.04.2021 22:50 robinsonchristopher0

Suppose the economy is thought to be 1 percent below potential (i. e., the output gap is -1 percent), when potential output grows 2.5 percent per year. Suppose the Fed is following the Taylor rule, with an inflation rate of 1.5 percent over the past year. The federal funds rate is currently 4 percent. The equilibrium long-run real interest rate is 2 percent and the weights on the output gap and inflation gap are 0.8 and 0.2 respectively. The inflation target is 2 percent. Is the fed funds rate currently too high or too low

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