Suppose the Equilibrium Real Overnight Interest Rate Is 5 Percent

Multiple Choice

Suppose the equilibrium real overnight interest rate is 5 percent, the target rate of inflation is 3 percent, the current inflation rate is 5 percent, and real GDP is 4 percent above potential real GDP. If the weights for the inflation gap and the output gap are both 1/2, then according to the Taylor rule the overnight interest target rate equals

A) 1 percent.
B) 5 percent.
C) 9 percent.
D) 13 percent.
E) 17 percent.