Fed choose as a target for the federal funds rate

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Reference no: EM13739779

Assume that inflation is currently 4% but the Fed’s inflation target is 2%.

a. if the economy is currently at full employment, what should the Fed choose as a target for the federal funds rate?

b. at what level should the Fed set the federal funds rate if the economy is 2% above potential GDP?

c. at what level should the Fed set the federal funds rate if the economy is 3% below potential GDP?

Reference no: EM13739779

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