Suppose Government Deficits Increase Such That Real Interest Rates Rise

Multiple Choice

Suppose government deficits increase such that real interest rates rise by 1.5 percentage points. According to the Taylor rule, if inflation targets remain unchanged, then nominal interest rates should rise by

A) less than 1 percent.
B) between 1 and 1.5 percent.
C) exactly 1.5 percent.
D) between 1.5 and 2 percent.
E) more than 2 percent.