According to the Taylor Rule, When Real GDP Is Equal

Multiple Choice

According to the Taylor rule, when real GDP is equal to potential GDP and the inflation rate is equal to its target rate of 2 percent, the Federal funds rate should be

A) 2 percent, and this implies a real interest rate of 0 percent.
B) 2 percent, and this implies a real interest rate of 4 percent.
C) 4 percent, and this implies a real interest rate of 2 percent.
D) 4 percent, and this implies a real interest rate of 4 percent.