State the Taylor rule [i.e. write down the formula & explain it]. What does the

Question

State the Taylor rule [i.e. write down the formula & explain it]. What does the Taylor predict will happen to the Fed funds rate in each of the following situations?

inflation is 2 percent, the inflation target is 3 percent, and output is 2 percent below potential.

Inflation is 4 percent, the inflation target is 2 percent, and output is 3 percent above potential.

Inflation is 4 percent, the inflation target is 3 percent, and output is 2 percent below potential.

show all work, derive relevant formulas, and clearly indicate & explain your results

Explanation / Answer

1. fft = ? + ff*r +

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