what-would-be-the-effect-on-the-federal-funds-rate-target-if-both-the-inflation-

Question

What would be the effect on the Federal Funds Rate target if both the inflation gap and output gap are positive?

Accepted Answer

The Federal Funds Rate target would increase.

Answer

The Federal Funds Rate target would decrease.

Answer

The Federal Funds Rate target would remain unchanged.

Answer

The Federal Funds Rate target would decrease only if the inflation gap is larger than the output gap.