The equation now called the ______________ starts with a 2 percent real interest rate, and then instructs the Fed to lower the interest rate in proportion to any recessionary gap and to raise it in proportion to any excess of inflation above 2 percent.

Question

Quizplus · Accepted Answer

The Taylor rule is a monetary policy formula that guides central banks in setting their target interest rates based on inflation and economic output gaps. It suggests that central banks should adjust interest rates in response to changes in the economy, specifically in proportion to the deviation of inflation from its target rate and the output gap from its potential level. The rule is named after economist John Taylor, who first proposed it in 1993.

The Equation Now Called the ______________ Starts with a 2