According to the Taylor rule, when real GDP is above its natural level, the nominal federal funds rate should be _____, and when inflation is below 2 percent, the nominal federal funds rate should be _____.
A) raised; raised
B) raised; lowered
C) lowered; raised
D) lowered; lowered

Question

Quizplus · Accepted Answer

According to the Taylor rule, when real GDP is above its natural level, the nominal federal funds rate should be raised, and when inflation is below 2 percent, the nominal federal funds rate should be lowered. Therefore, choice B, which says the nominal federal funds rate should be raised when real GDP is above its natural level and lowered when inflation is below 2 percent, is the correct choice.

According to the Taylor Rule, When Real GDP Is Above