According to the Taylor Rule, the Two MOST Important Factors

question 185

Multiple Choice

According to the Taylor rule, the two MOST important factors influencing the Federal Reserve's changing the federal funds rate are

• A) an inflation rate different from the Fed's target and output different from potential GDP.
• B) an inflation rate different from the Fed's target and increasing interest rates.
• C) increasing interest rates and output different from potential GDP.
• D) output different from potential GDP and unemployment rates different from full employment.

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Definitions:

Inefficient

A state where resources are not optimally allocated, often resulting in wasted resources or outputs that do not maximize potential value.

Monopolistically Competitive

Describes a market structure where many companies sell products that are substitutes, but are not perfect substitutes, leading to some degree of market power for each firm.

Barriers to Entry

Obstacles that make it difficult for new competitors to enter a market, such as high startup costs or strict regulations.

Product Differentiation

The process of distinguishing a product from others in the market to make it more attractive to a particular target market.