Assume That the Bank of Canada Has a Target Inflation

Multiple Choice

Assume that the Bank of Canada has a target inflation rate of 2% and that the values for how much the nominal target overnight rate responds to a deviation of inflation from its target,g,and how much the nominal target overnight rate responds to real GDP,h,are both 0.5.According to the Taylor rule,if inflation decreases by 2%,the real interest rate will decrease by

A) 1%.
B) 2%.
C) 3%.
D) 4%.