The Taylor Principle states a central bank should raise the nominal interest rate by ________ the increase in the inflation rate so that the real interest rate ________.

Question

Quizplus · Accepted Answer

The Taylor Principle suggests that to effectively manage inflation, a central bank should increase the nominal interest rate by more than the increase in the inflation rate, which results in an increase in the real interest rate. This approach helps in tempering economic activity and controlling inflationary pressures.

The Taylor Principle States a Central Bank Should Raise the Nominal