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suppose the equilibrium real federal funds rate is 2 percent, the target rate of inflation is 2 percent, the current inflation rate is 4 percent, and real gdp is 2 percent above potential real gdp. if the weights for the inflation gap and the output gap are both 1/2, then according to the taylor rule the federal funds target rate equals

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The federal funds target rate is equivalent to 8% based on the Taylor rule. The federal funds rate is determined by the FOMC, or Federal Open Markets Committee.

used to regulate overnight lending among American banks; also known as the federal funds target rate or the federal funds rate. It has been set as a range between two limits, upper and lower. This is how it goes: Customers make deposits at banks, and those deposits give the banks the funding they need to offer their clients loans and other forms of credit. To assist ensure their stability and solvency, regulators mandate that banks and other depository institutions maintain a specific portion of their total capital in reserve. The amount of capital that banks have varies day to day as a result of deposits being added and subtracted as well as loans being granted and repaid. This implies that they likewise have fluctuating reserve needs.

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