The Taylor rule implies that the nominal federal funds rate should be increased if there is a_____ output gap or a_____ inflation gap.?
A)?positive? positive
B)?positive? negative
C)?negative? positive
D)?negative? negative

Question

The Taylor rule implies that the nominal federal funds rate should be increased if there is a_____ output gap or a_____ inflation gap.?
A)?positive? positive
B)?positive? negative
C)?negative? positive 
D)?negative? negative

Quizplus · Accepted Answer

The Taylor rule suggests that the nominal federal funds rate should be increased if there is a positive output gap (economy is overheating) or a positive inflation gap (inflation is above the target), to cool down the economy and bring inflation back to target.

The Taylor Rule Implies That the Nominal Federal Funds Rate