1 point: Federal funds rate = 1 + (1.5 × inflation rate) + (0.5 × output gap)
1 point: It’s not a perfect fit but it is usually a close approximation.
1 point: It does better than any one measure alone, and it has always correctly predicted the direction of change of interest rates.
1 point: 1 + (1.5 × 1) + (0.5 × 3) = 4%
1 point: An increase of 3 (1.5 × 2) percentage points
1 point: Contractionary monetary policy