According to the Taylor rule, the two MOST important factors influencing the Federal Reserve's changing the federal funds rate are
A) an inflation rate different from the Fed's target and output different from potential GDP.
B) an inflation rate different from the Fed's target and increasing interest rates.
C) increasing interest rates and output different from potential GDP.
D) output different from potential GDP and unemployment rates different from full employment.

Question

Quizplus · Accepted Answer

The Taylor rule states that the federal funds rate should be adjusted based on the deviation of inflation from the Fed's target and the deviation of output from potential GDP. Therefore, choice A is the most accurate answer. Choice B only identifies one factor, while choices C and D include factors that are less important in guiding the Fed's monetary policy.

According to the Taylor Rule, the Two MOST Important Factors