Using the Taylor rule,if the current inflation rate exceeds the target inflation rate and real GDP exceeds potential GDP,then the federal funds target rate ________ the sum of the current inflation rate plus the real equilibrium federal funds 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 the current inflation rate exceeds the target inflation rate and real GDP exceeds potential GDP, then the federal funds target rate should be set higher to bring inflation back to target. Therefore, the federal funds target rate will be greater than the sum of the current inflation rate plus the real equilibrium federal funds rate.

Using the Taylor Rule,if the Current Inflation Rate Exceeds the Target