According to the Taylor rule, the Fed should raise the federal funds rate by 0.5% relative to the inflation rate _____.
A)if nominal GDP rises 1.0% above its target of 1.0%
B)if real GDP rises 1.0% above its target of 1.0%
C)if inflation falls 1.0% below its target of 2.0%
D)if inflation rises 1.0% above its target of 2.0%
E)if nominal GDP falls 1.0% below its target of 1.0%

Question

Quizplus · Accepted Answer

According to the Taylor rule, the Fed should raise the federal funds rate by 0.5% relative to the inflation rate if inflation rises 1.0% above its target of 2.0%. This is because the Taylor rule recommends adjusting interest rates in response to deviations from the inflation target.

According to the Taylor Rule, the Fed Should Raise the Federal