The Taylor rule implies that the Fed should set the federal funds target based on which of the following?

Question

Quizplus · Accepted Answer

The Taylor rule suggests that the Fed should set the federal funds rate target based on three factors:

A) an estimate of the long-run real interest rate (the interest rate consistent with potential output growth and stable inflation), 
B) the current deviation of actual inflation from the Fed's inflation target, and 
C) the proportionate gap between actual real GDP and potential real GDP.

Therefore, all three choices mentioned in the question (A, B, and C) are included in the Taylor rule's recommended considerations for setting the federal funds rate target.

The Taylor Rule Implies That the Fed Should Set the Federal