The Taylor rule
A) is equivalent to the inflation rule.
B) targets the federal funds rate.
C) is the official rule adopted in the Federal Reserve Act.
D) targets GDP and employment.

Question

Quizplus · Accepted Answer

The Taylor rule is a monetary policy guideline that suggests how central banks (such as the Federal Reserve) should adjust interest rates in response to changes in inflation, economic growth, and other economic factors. Specifically, the Taylor rule recommends that the central bank should set the federal funds rate based on the current inflation rate, the "equilibrium" real interest rate, and the deviation of actual GDP from potential GDP. Therefore, the Taylor rule targets the federal funds rate, making choice B the correct answer.

The Taylor Rule