If the Fed follows the Taylor rule and the economy goes into a recession, the Fed would

Question

Quizplus · Accepted Answer

According to the Taylor rule, if inflation rises above the target rate, the Fed should raise the federal funds rate. Conversely, if the economy falls into a recession, the Fed should lower interest rates to stimulate economic growth. Therefore, the correct answer is to lower the federal funds rate (choice C). Choices A and B are incorrect because they refer to fiscal policy tools, not monetary policy tools that the Fed would use to implement the Taylor rule.

If the Fed Follows the Taylor Rule and the Economy