Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP is less than potential GDP, then the overnight interest target rate ________ the sum of the current inflation rate plus the equilibrium real overnight interest rate.
A)will be greater than
B)will be less than
C)will be the same as
D)may be greater than or less than

Question

Quizplus · Accepted Answer

According to the Taylor rule, if real GDP is less than potential GDP, the interest rate should be set lower to stimulate the economy. Therefore, the overnight interest target rate will be less than the sum of the current inflation rate plus the equilibrium real overnight interest rate.

Using the Taylor Rule, If the Current Inflation Rate Equals