According to the Taylor rule,the Fed should set the target for the federal funds rate equal to the sum of the equilibrium real federal funds rate,the current inflation rate,one-half times the ________,and one-half times the ________.
A)interest rate gap; inflation gap
B)interest rate gap; output gap
C)inflation gap; output gap
D)unemployment gap; government-spending gap

Question

Quizplus · Accepted Answer

The Taylor rule suggests setting the federal funds rate based on the equilibrium real rate, current inflation, and adjustments for the inflation gap (difference between actual and target inflation) and the output gap (difference between actual and potential output).

According to the Taylor Rule,the Fed Should Set the Target