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Suppose the federal funds rate is 4.4 percent and you know that the Fed is following the Taylor rule. You don't know the Fed's inflation target, but the equilibrium real interest rate is 4 percent, the inflation rate is 3 percent, the weight on the GDP gap is 0.4, the weight on the inflation gap is 0.6 and nominal GDP is 2 percent points below its target. Calculate the Fed's inflation target from this information.

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M92190241

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