Between approximately 2001 and 2006, the Taylor rule predicted the federal funds rate was:
A) greater than the actual federal funds rate.
B) less than the actual federal funds rate.
C) statistically equal to the actual federal funds rate.
D) negatively correlated with the federal funds rate.
E) None of these answers is correct; the Taylor rule is used to predict the natural rate of unemployment.

Question

Quizplus · Accepted Answer

The Taylor rule, which is a guideline for setting interest rates based on economic conditions, predicted a higher federal funds rate than what was actually set by the Federal Reserve during the period between approximately 2001 and 2006. This discrepancy often points to a more accommodative monetary policy than the Taylor rule would suggest.

Between Approximately 2001 and 2006, the Taylor Rule Predicted the Federal