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According to the Taylor Rule, If Inflation Equals 4 Percent

Question 42

Multiple Choice

According to the Taylor rule, if inflation equals 4 percent and there is a recessionary gap equal to 4 percent of potential output, the Fed will set a real interest rate of ________ percent and a nominal interest rate of ________ percent.


A) 4; 4
B) 1; 5
C) 1; 4
D) 2; 4

Correct Answer:

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