The "Taylor rule" for monetary policy provides the Fed with a

Question

Quizplus · Accepted Answer

The Taylor rule provides the Fed with a benchmark to guide policy decisions. It does not mechanistically prescribe a specific policy response to economic conditions, but instead suggests a formula for setting the federal funds rate based on the level of inflation and the output gap. The Fed can use this as a reference point for setting monetary policy, but can also take into account other factors such as financial stability considerations. It does not provide a time frame for discount rate changes or a rule for changing the M1 money supply.

The "Taylor Rule" for Monetary Policy Provides the Fed with a