According to the Taylor rule, if inflation has risen by 6 percentage points above its target of 2 percent, the Fed should
A)grow the money supply at a rate of 6 percent per year.
B)raise the real federal funds rate by 6 percentage points.
C)raise the real federal funds rate by 3 percentage points.
D)raise the real federal funds rate by 12 percentage points.

Question

Quizplus · Accepted Answer

The Taylor rule suggests that the central bank should raise the real federal funds rate by 3 percentage points for every 1 percentage point increase in inflation above the target.

According to the Taylor Rule, If Inflation Has Risen by 6