According to the Taylor rule, when real GDP is at its potential and inflation is at its target rate of 2 percent, the Fed should
A)carefully lower the federal funds rate in an attempt to stimulate noninflationary real GDP growth.
B)raise the federal funds rate in an attempt to eliminate the remaining inflation.
C)lower the federal funds rate to lower borrowing costs for the federal government.
D)keep the federal funds rate at 4 percent.

Question

Quizplus · Accepted Answer

The Taylor rule suggests that when real GDP is at its potential and inflation is at its target rate, the federal funds rate should be set at a neutral level, often estimated around 4 percent, to maintain stable economic conditions.

According to the Taylor Rule, When Real GDP Is at Its