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Use the following Taylor rule to calculate what would happen to the real interest rate if inflation increased by 3 percentage points.

Target federal funds rate = 2 + Current inflation + 1/2 (Inflation gap) + 1/2(Output gap)

If inflation goes up by 3 percentage points, the target federal funds rate goes up by? percentage points ?

( percentage points due to the direct impact of inflation and another percentage ? points due to an increase in the inflation gap ?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M92203293

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