According to the Taylor rule,if real GDP rises 1 percent above potential GDP,the Fed should raise the federal funds rate,relative to the current rate of inflation,by:
A) 0.5 percentage point.
B) 1 percentage point.
C) 1.5 percentage points.
D) 2 percentage points.

Question

Quizplus · Accepted Answer

The Taylor rule suggests that for every 1 percent increase in real GDP above potential GDP, the federal funds rate should be increased by 0.5 percentage points.

According to the Taylor Rule,if Real GDP Rises 1 Percent