According to the Taylor rule, the more actual GDP falls below potential GDP, other things equal, the lower the federal funds target rate.

Question

Quizplus · Accepted Answer

This is correct according to the Taylor rule, which takes into account the difference between actual GDP and potential GDP in setting the federal funds target rate. As actual GDP falls below potential, the rule suggests lowering the target rate to stimulate economic activity.

According to the Taylor Rule, the More Actual GDP Falls