According to the Taylor Rule, If the Target Rate of Inflation

Multiple Choice

According to the Taylor rule, if the target rate of inflation for the Fed is 2 percent and real GDP rises by 1 percent above potential GDP, then the Fed should

A) raise the real federal funds rate by one percentage point.
B) lower the real federal funds rate by one percentage point.
C) raise the real federal funds rate by half of a percentage point.
D) lower the real federal funds rate by half of a percentage point.