The Taylor rule
A) focuses on only fluctuations in real GDP.
B) ignores price level stability to focus on responding to fluctuations in real GDP.
C) is the rule actually followed by the Fed.
D) shows how the Fed could set the federal funds rate.

Question

Quizplus · Accepted Answer

The Taylor rule is a guideline for how central banks like the Federal Reserve should adjust interest rates in response to changes in economic conditions, specifically inflation and the output gap. It does not exclusively focus on real GDP fluctuations nor ignore price level stability, and it is not the exact rule followed by the Fed, though it influences monetary policy decisions.

The Taylor Rule