Question
The Taylor Rule is a guideline for central banks setting the nominal federal funds rate (i
- T . If the rule is given by iT=r∗+π+0.5(π−π∗)+0.5(Y−Y∗), where r∗=2%, π∗=2%, and Y is the output gap (as a percentage), what is the target nominal rate if inflation (π) is 4% and the output gap (Y−Y∗) is 2%?
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