Which statement is FALSE?
A) The Taylor rule sets the federal funds rate on the basis of both inflation rate and output gap, whereas inflation targeting is based on a desired inflation rate.
B) The Taylor rule sets the federal funds rate on the basis of past inflation rates, whereas inflation targeting is based on a forecast of the inflation rate.
C) The Taylor rule can be more flexible, whereas inflation targeting provides more transparency and accountability.
D) The Taylor rule sets the federal funds rate on the basis of only past inflation rates, whereas inflation targeting is based on a target interest rate and business cycles.

Question

Quizplus · Accepted Answer

The statement that the Taylor rule sets the federal funds rate on the basis of only past inflation rates is false. The Taylor rule takes into account both inflation rates and output gap.

Which Statement Is FALSE