The Taylor rule says that the ________ is,the lower will be the federal funds rate.
A) higher the inflation rate
B) lower the output gap
C) higher the volume of bank reserves
D) higher the supply of money

Question

Quizplus · Accepted Answer

The Taylor rule is a formula that central banks use to set the target interest rate based on current economic conditions, including inflation and economic growth. According to the Taylor rule, the lower the output gap (the difference between actual output and potential output), the lower the federal funds rate. This is because a lower output gap indicates that the economy is operating below capacity, which suggests that inflationary pressures are low and the central bank can lower interest rates to stimulate growth. Therefore, option B is the correct choice.

The Taylor Rule Says That the ________ Is,the Lower Will