The Taylor rule

Question

The Taylor rule

Quizplus · Accepted Answer

The Taylor rule is a policy guideline suggesting that the central bank should adjust its target interest rate according to changes in real economic activity and inflation. This is done in order to stabilize the economy and maintain price stability. Option A is incorrect as the Taylor rule does not specify a constant rate of money growth. Option B is incorrect as the Taylor rule is considered a practical policy rule by many central banks. Option D is incorrect as the Taylor rule suggests changes in the nominal interest rate as needed to maintain economic stability.

The Taylor Rule