Suppose an economy faces a current federal funds rate = 4%; inflation rate = 3%; inflation rate target = 2%; current GDP is 3% higher than full-employment GDP. According to the Taylor rule, which policy approach should this country be using?
A) accommodative monetary policy
B) quantitative easing
C) tight money
D) No change in monetary policy is needed since the federal funds rate is at the desired level.
Correct Answer:
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