Question

If the previous quarter Fed Funds Rate is 4.4, the previous quarter inflation gap is 1.3, and the previous quarter output gap is -1.7, then what is the Federal Funds Rate Taylor Target

Answer 1

The Federal Funds Rate Taylor Target is 4.2%.

Step-by-step explanation:

The Federal Funds Rate Taylor Target can be calculated using the Taylor Rule equation:

Target Federal Funds Rate = Previous Quarter's Federal Funds Rate + (0.5 * Inflation Gap) + (0.5 * Output Gap)

Using the given information:

Previous Quarter Fed Funds Rate = 4.4

Previous Quarter Inflation Gap = 1.3

Previous Quarter Output Gap = -1.7

Plug these values into the equation:

Target Federal Funds Rate = 4.4 + (0.5 * 1.3) + (0.5 * -1.7) = 4.4 + 0.65 - 0.85 = 4.2

Therefore, the Federal Funds Rate Taylor Target is 4.2%.