The Taylor Rule states that the
A) Fed should target the monetary base and not the federal funds rate.
B) use of an exchange rate target, although costly, is economically efficient.
C) Fed should adjust the federal funds rate to take account of the deviations of the inflation rate from its target and real GDP from potential GDP.
D) None of the above is correct.

Question

Quizplus · Accepted Answer

The Taylor Rule suggests that the Federal Reserve (Fed) should adjust the federal funds rate based on deviations of inflation from its target level and deviations of real GDP from potential GDP. This approach aims to stabilize the economy by controlling inflation and smoothing out the business cycle.

The Taylor Rule States That the