If the Fed's Policy Reaction Function Equals R =

Multiple Choice

If the Fed's policy reaction function equals r = .02 + π, where r is the real interest rate and π is the inflation rate. When the inflation rate is zero, then the real interest rate will be:

A) set to equal 2 percent.
B)  below the target value for the real interest rate.
C) set to equal zero.
D) set to equal 4 percent.