Question: 2.For the current year the inflation rate is 2%, the output gap is 3%, and the neutral real interest rate in 5%. a)What is the

2.For the current year the inflation rate is 2%, the output gap is 3%, and the neutral real interest rate in 5%.

a)What is the federal funds rate this year according to the Fed rule-of-thumb?

b)If the federal funds rate next year is 4%, is this expansionary or contractionary monetary policy?

c)With the change in the federal funds rate from part b), what happens to the money supply, interest rates, investment, and output?

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