If the Fed sets the federal funds rate equal to 2 plus the inflation rate plus one-half of the inflation gap plus one-half of the output gap,it is following:
A) Friedman's monetary rule.
B) inflation targeting procedures.
C) monetary targeting procedures.
D) the Taylor rule.

Question

Quizplus · Accepted Answer

The formula described in the question is the well-known Taylor rule, which provides a guideline for central banks to set their policy interest rate based on the deviation of inflation and output from their target levels. The rule was first proposed by economist John Taylor in 1993 and has since been widely used by central banks around the world, including the Federal Reserve in the United States. Friedman's monetary rule, inflation targeting, and monetary targeting are other monetary policy frameworks that differ from the Taylor rule in their specific formulation and objectives.

If the Fed Sets the Federal Funds Rate Equal to 2