According to the Taylor Rule, If Real GDP Falls by 1

question 318

True/False

According to the Taylor rule, if real GDP falls by 1 percent below potential GDP, the Fed should lower the federal funds rate by one-half a percentage point.

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Definitions:

Dividend

A portion of a company's earnings distributed to shareholders, usually in the form of cash or additional stock.

Constant Growth

A model assuming that dividends or any other type of cash flow grow at a constant rate indefinitely.

Debt/Equity Ratio

A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity.

Weighted Average Cost Of Capital

The average rate that a company is expected to pay to finance its assets, weighted according to the proportion of equity and debt in its capital structure.