Which of the Following Correctly Represents the Taylor Rule

question 91

Multiple Choice

Which of the following correctly represents the Taylor rule?

• A) i = Π + i* + a(Π - Π*) / b (GDP - GDP*), where Π is the inflation rate, Π* is the target inflation rate, GDP* is the potential GDP, and i* is the real interest rate.
• B) i = Π + i* + a(Π - Π*) + b (GDP - GDP*), where Π is the inflation rate, Π* is the target inflation
• C) i = Π + i* + a(Π - Π*) - b (GDP - GDP*), where Π is the inflation rate, Π* is the target inflation rate, GDP* is the potential GDP, and i* is the real interest rate.
• D) i = Π + i* + a(Π - Π*) * b (GDP - GDP*), where Π is the inflation rate, Π* is the target inflation

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Definitions:

Initial Equilibrium

The initial state of balance where the supply and demand curves intersect, determining the market price and quantity before any external changes.

Equilibrium Price

The market price at which the quantity of goods demanded is equal to the quantity of goods supplied.

Equilibrium Quantity

The quantity of goods or services supplied that is equal to the quantity demanded at the market equilibrium price.

Exert Pressure

Applying force or influence to achieve a specific outcome or change.