Using the Taylor rule,if the current inflation rate equals the target inflation rate and real GDP is greater than 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

The Taylor rule suggests that if real GDP is above potential GDP (indicating an overheating economy), the central bank should raise the federal funds rate above the sum of the current inflation rate and the real equilibrium federal funds rate to cool down the economy.

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