If the central bank did not follow the Taylor principle ________.
A) inflation would spiral out of control
B) it could rely on autonomous monetary policy changes
C) it could rely on non-conventional monetary policy tools
D) B and C only

Question

Quizplus · Accepted Answer

The Taylor principle suggests that central banks should raise interest rates by more than the increase in inflation to maintain price stability. If the central bank did not follow this principle and only increased interest rates by the same amount as inflation, for example, then inflation could spiral out of control. Options B and C may be possible, but they are not necessarily guaranteed to be effective in controlling inflation.

If the Central Bank Did Not Follow the Taylor Principle