The Taylor rule specifies that the Bank of Canada should increase the overnight rate as inflation _____ and the GDP gap _____.
A)increases; increases
B)increases; decreases
C)decreases; increases
D)decreases; decreases

Question

Quizplus · Accepted Answer

The Taylor rule suggests that central banks should raise interest rates when inflation is above the target or when the economy is operating above its potential (positive GDP gap), which occurs when the GDP gap increases.

The Taylor Rule Specifies That the Bank of Canada Should