The Taylor Principle states that central banks raise nominal rates by ________ than any rise in expected inflation so that real interest rates ________ when there is a rise in inflation.
A)less;rise
B)more;fall
C)less;fall
D)more;rise

Question

Quizplus · Accepted Answer

The Taylor Principle suggests that central banks should increase nominal interest rates by more than the rise in expected inflation, ensuring that real interest rates rise in response to inflation. This approach helps in moderating inflationary pressures by making borrowing more expensive and saving more attractive.

The Taylor Principle States That Central Banks Raise Nominal Rates