Suppose the federal funds rate is 6 percent. If the output gap increases by 2 percentage points and the weight on output gap is 0.6, by how much should the federal funds rate increase according to the Taylor rule if all other variables remain unchanged?​

A. It should increase by 0.4 percentage points.
B. It should increase by 0.6 percentage points.
C. It should increase by 2 percentage points.
D. It should increase by 1.2 percentage points.

ANSWER:

D