The Taylor principle describes Fed behavior that nominal
Interest rates _ .
A) raises, by the same amount as inflation
B) lowers, by less than the amount of inflation
C) lowers, by more than the amount of inflation
D) raises, by less than the amount of inflation
E) raises, by more than the amount of inflation

Question

Quizplus · Accepted Answer

The Taylor principle suggests that central banks (like the Fed) should raise nominal interest rates by more than the increase in inflation to stabilize the economy. This approach helps in maintaining the real interest rate and controlling inflationary pressures.

The Taylor Principle Describes Fed Behavior That Nominal