According to the Taylor rule,if output is above its full-employment level and inflation is less than 2%
A)the Fed should raise the Fed funds rate above 4%.
B)the Fed should reduce the Fed funds rate below 4%.
C)the Fed should make the Fed funds rate exactly 4%.
D)what the Fed should do is ambiguous.

Question

Quizplus · Accepted Answer

The Taylor rule suggests adjusting the federal funds rate in response to deviations of actual inflation from target inflation and of actual output from potential output. However, it does not prescribe a specific action under all conditions, making the appropriate response to the given scenario ambiguous without more specific information about the magnitudes of the deviations or the weights the central bank places on them.

According to the Taylor Rule,if Output Is Above Its Full-Employment