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:

Logrolling

A practice in politics where individuals or parties exchange support for each other's proposals or legislation, often regardless of the merits of the involved issues.

Elected Officials

Individuals chosen through an electoral process to hold public office and make policy decisions.

Logrolling

A practice in political decision-making processes where parties agree to vote for each other's proposed bills or policies, even if they do not have immediate personal interest, to ensure mutual benefit.

Economic Efficiency

Economic efficiency occurs when resources are allocated in a way that maximizes productivity while minimizing waste and inefficiencies.