According to the Taylor rule, the more GDP falls below potential GDP, other things equal, the
A) higher the federal funds target rate.
B) higher the discount rate.
C) lower the federal funds target rate.
D) lower the unemployment rate.

Question

Quizplus · Accepted Answer

According to the Taylor rule, as GDP falls below potential GDP, the Federal Reserve should lower the federal funds target rate in order to stimulate economic growth and bring the economy back to equilibrium. Therefore, the correct choice is C, lower the federal funds target rate.

According to the Taylor Rule, the More GDP Falls Below