According to the Taylor Rule

question 307

Multiple Choice

According to the Taylor rule,

• A)if real GDP rises by 2 percent above potential GDP, the Fed should raise the real federal funds rate by 1 percentage point.
• B)when real GDP is equal to potential GDP and inflation is equal to its target of 4 percent, the federal funds rate should be kept at 2 percent.
• C)if inflation falls by 1 percentage point below its target of 2 percent, then the Fed should raise the real federal funds rate by one-half a percentage point.
• D)all of these are appropriate Fed actions.

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Definitions:

Work in Process Inventory

Inventory that includes all materials, labor, and overhead costs for products in the manufacturing process but not yet completed.

Direct Materials Inventory

The stock of raw materials that will be directly used in the production of goods, readily available for the manufacturing process.

Direct Labor Hours

The total hours worked by employees directly involved in the production of goods or services.

Factory Overhead

All indirect costs associated with the production process, excluding direct materials and direct labor, such as utilities, maintenance, and managerial salaries.