Assuming the simple Taylor rule for dictating the federal funds rate, when the actual federal funds rate deviates from the suggested rate, it can be explained by:
A) bad monetary policy.
B) discretionary fiscal policy.
C) a richer version of the Taylor rule.
D) poorly informed monetary policy.
E) poorly informed fiscal policy.

Question

Quizplus · Accepted Answer

When the actual federal funds rate deviates from the suggested rate based on the simple Taylor rule, it can be explained by the use of a richer version of the Taylor rule, which includes additional variables beyond inflation and output gap. This can lead to a more accurate suggested rate and justify deviations from the simple rule. Other options like bad monetary or fiscal policy, or poorly informed policy-making do not necessarily explain the deviations.

Assuming the Simple Taylor Rule for Dictating the Federal Funds