Use the following Taylor rule to calculate what would happen to the real interest rate if inflation increased by 5 percentage points.
Target federal funds rate = 2 + Current inflation + 1/2 (Inflation gap) + 1/2(Output gap)
Instructions: Round your answers to one decimal place.
If inflation goes up by 5 percentage points, the target federal funds rate goes up by ______ percentage points (______ percentage points due to the direct impact of inflation and another______ percentage points due to an increase in the inflation gap).
According to the Fisher equation, if the nominal rate increased by______ percentage points and inflation increased by_______ percentage points, the real interest rate must have increased by_______ percentage points.