The Taylor Rule Is 2 + Inflation Rate + 1/2

question 130

Multiple Choice

The Taylor rule is 2 + inflation rate + 1/2 output gap + 1/2 inflation gap. If inflation is 1%, output gap is -3%, and the inflation gap is -1%, the target interest rate is:

• A) 0%
• B) 1%
• C) 4%
• D) 6%

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Definitions:

Preexisting Duty

An obligation or duty that already exists under contract law and does not constitute valid consideration for a new agreement.

Rescission

The act of canceling, voiding, or annulling a contract, returning the parties to their positions prior to the contract.

Usury

Charging an illegal rate of interest.

Lawful Maximum

The highest limit allowed by law, often referring to interest rates, fees, or other financial charges.