If Taylor’s rule prescribes a real interest rate below the neutral rate, the eco

Question

If Taylor’s rule prescribes a real interest rate below the neutral rate, the economy is

in a recession.

If Taylor’s rule prescribes a real federal funds rate of 4% and a nominal federal funds rate is 8%, the expected inflation rate must be

cannot be determined.

If the neutral real interest rate is 3%, the output gap is –1%, the target inflation rate is 2%, the actual inflation rates is 1%, and the coefficients for the output gap and inflation differential both equal 1, the real interest rate prescribed by Taylor’s rule is

4%.

An argument favoring stabilizing output is that

shifting unemployment from recessions to booms does not benefit society.

Explanation / Answer

Answering the first question as answering multiple questions isn't allowed on Chegg

1. d) in a recession

During recession the economy is already in a state of liquidity trap so the Fed finds it necessary to cut interest rates in response to the financial crisis.

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