Question content area

Part $1$

Suppose the current price level is

$149\mathrm{.}2$

and one year ago the price level was

$145\mathrm{.}5$

$.$

Output is currently

$12$ comma $773\mathrm{.}3$

and potential output is

$13$ comma $534\mathrm{.}2$

$($both in billions of $2009$ dollars$).$

a$.$ What value of the federal funds rate would the Fed choose if it follows the Taylor$$ rule?

i $=$

$0\mathrm{.}020$

$($report

your answer in decimals to three

places$)$

Part $2$

b$.$ Suppose that one year$$ later, the price level has declined by

$0\mathrm{.}2$

$\%,$

output has declined by

$1\mathrm{.}6$

$\%,$

and potential output has increased

$2\mathrm{.}5$

$\%.$

In this new$$ situation, what value of the federal funds rate would the Fed choose if it follows the Taylor$$ rule?

i $=$

enter your response here

$($report

your answer in decimals to three

places$)$