Given the following formula for the Taylor rule:Target federal funds rate = natural rate of interest + current inflation + 1/2(inflation gap) +1/2(output gap) if the current rate of inflation is 5%, the natural rate of interest is 2%, and the target rate of inflation is 2%, and output is 3% above its potential, the target federal funds rate would be:

Inflation results

(a) when the price of one good or service increases. (b) when too much money is chasing too few goods. (c) when prices, on average, decrease across the economy. (d) when banks decrease lending.

Suppose the economy is in equilibrium when there is a change in environmental policy that bans all pesticides and herbicides on farmland. We would expect to observe

A) a decrease in aggregate supply and an increase in aggregate demand. B) a decrease in both real output and the natural rate of unemployment. C) a decrease in real output and an increase in the natural rate of unemployment. D) a decrease in real output and an increase in the price level.