Suppose that the Fed has decided to utilize the Taylor rule to implement monetary policy. If the actual federal funds rate target is presently below the level specified by the Taylor rule and has been lower then this level for several weeks, then this would be a signal that

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According to the Taylor rule, when the actual federal funds rate target is below the level specified by the rule, it indicates that monetary policy is very expansionary. This is because the Taylor rule suggests that the federal funds rate should be adjusted to keep inflation and output growth on target, and a rate below the specified level implies that the policy is providing more stimulus to the economy than what is needed to achieve those targets.

Suppose That the Fed Has Decided to Utilize the Taylor