Suppose the actual federal funds rate is below the rate implied by a particular inflation goal. In this situation, the Taylor rule implies that

Question

Quizplus · Accepted Answer

The Taylor rule suggests that monetary policy should be expansionary if the actual federal funds rate is below the rate implied by the inflation goal. This means that the central bank should lower interest rates to stimulate borrowing and spending, leading to an increase in economic activity and inflation.

Suppose the Actual Federal Funds Rate Is Below the Rate