Question: Using the Taylor rule, when the equilibrium real overnight rate is 2 percent, the positive output gap is 3 percent, the target inflation rate is

Using the Taylor rule, when the equilibrium real overnight rate is 2 percent, the positive output gap is 3 percent, the target inflation rate is 1 percent, and the actual inflation rate is 3 percent, the nominal overnight rate target should be

A. 5 percent.

B. 4.5 percent.

C. 6 percent.

D. 6.5 percent

E. None of the above.

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