carolyn7938
09.12.2019 •
Business
Suppose the federal reserve's target for inflation is 2%, the current inflation rate is 2%, and the output gap is 4%. what should be the target for the federal funds rate according to the taylor rule as it is presented in the book?
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Ответ:
The target federal funds rate=8%
Explanation:
The formula for calculating the target federal funds rate is as follows;
I=R*+PI+0.5(PI-PI*)+0.5(PO-PO*)
where;
I=Target federal funds rate
R=real interest rate
PI=inflation rate
PI*=target inflation rate
PI-PI*=Inflation gap
PO=current output
PO*=target output
PO-PO*=output gap
This can be written as;
Target federal funds rate=real interest rate+inflation rate+0.5×(inflation gap)+0.5×(output gap)
where;
R=2%
PI=2%
PI*=2%
PI-PI*=2-2=0%
PO-PO*=4%
replacing;
Target federal funds rate=2+2+0+4%=8%
The target federal funds rate=8%
Ответ:
The interest rate the bank charges you for your loan.
Explanation:
The bank is trying to make money, so the bank is going to PAY you a lower interest rate on your savings account, but CHARGE you a higher interest rate on your loan. Then, the bank makes more money out of the deal.