In the Taylor Rule, If the Inflation Coefficient ? Is

question 8

Multiple Choice

In the Taylor rule, if the inflation coefficient ? is much larger than the output coefficient ?, then the central bank

• A)is mostly concerned with maintaining full-employment
• B)will raise interest rates more aggressively when output declines than when inflation heats up
• C)will lower interest rates more aggressively when output declines than when inflation heats up
• D)is engaging in strict inflation targeting
• E)none of the above

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Definitions:

Correlation

An index quantifying how much two or more variables move in conjunction with one another.

Prediction Error

The difference between the observed values and the values predicted by a model.

Absolute Value

The non-negative value of a number without regard to its sign; essentially, it's the distance of a number from zero on the real number line.

Correlation

Correlation is a statistical measure that expresses the extent to which two variables fluctuate together, showing the strength and direction of their relationship.