Suppose the Inflation Rate Target Is Zero and the Long-Run

Multiple Choice

Suppose the inflation rate target is zero and the long-run federal funds target is also zero.If the federal funds rate set using the Taylor rule is 2 percent and output exceeds the trend output level by 1 percent,the inflation rate is ________.

A) ‒0.5 percent
B) 1 percent
C) 2.5 percent
D) 3 percent