The Taylor Rule Can Be Written as FF Rate =

question 36

Multiple Choice

The Taylor rule can be written as FF rate = inflation + 2.0 + 0.5 (inflation - 2.0) + 0.5 (GDP gap) , where FF rate is the nominal federal funds rate and the GDP gap is the percentage deviation of real GDP from its natural level. If inflation is 2 percent and the GDP gap is -2 percent, then according to the Taylor rule, the Fed should set the nominal federal funds rate at percent.

• A)2
• B)3
• C)4
• D)5

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Definitions:

T Statistic

The t statistic is a value used in statistical analysis to determine the significance of the difference between two sample means, relative to the sample variability.

Preliminary Analysis

An initial examination of data to check for possible errors, understand basic trends and assumptions, and determine the most appropriate statistical tests.

Approximately Normal

Describes a data distribution that closely follows a normal distribution, even though it may not be perfectly normal.

Outliers

Observations that lie an abnormal distance from other values in a random sample from a population.