Using the Simple Monetary Rule, If the Inflation Rate Is

Multiple Choice

Using the simple monetary rule, if the inflation rate is 2 percent below the target inflation rate and the marginal product of capital is 1 percent, the Federal Reserve will:

A) lower the target rate by 2 percent.
B) raise the interest rate by 1 percent.
C) lower the interest rate by 1 percent.
D) lower the discount rate by 1 percent.
E) Not enough information is given.