According to the Taylor Rule, If Inflation Equals 3 Percent

Multiple Choice

According to the Taylor rule, if inflation equals 3 percent and there is a recessionary gap equal to 3 percent of potential output, the Fed will set a real interest rate of ________ percent and a nominal interest rate of ________ percent.

A) 3; 3
B) 1; 4
C) 1; 3
D) 2; 4