According to the Taylor rule, if real GDP falls by 1 percent below potential GDP, the Fed should lower the federal funds rate by one-half a percentage point.

Question

Quizplus · Accepted Answer

The Taylor rule suggests adjusting the federal funds rate based on deviations of actual GDP from potential GDP and inflation from the target rate. A 1% GDP shortfall typically calls for a 0.5% rate cut.

According to the Taylor Rule, If Real GDP Falls by 1