According to the Taylor Rule, When the Economy Has a Zero-Unemployment

question 283

Multiple Choice

According to the Taylor rule, when the economy has a zero-unemployment gap and the inflation rate is equal to its target rate of 2 percent, the Fed's targeted interest rate should be

• A) 2 percent, and this implies a real interest rate of 0 percent.
• B) 2 percent, and this implies a real interest rate of 4 percent.
• C) 4 percent, and this implies a real interest rate of 2 percent.
• D) 4 percent, and this implies a real interest rate of 4 percent.

---

Definitions:

Warranted

Justified or supported by reasonable evidence or authority.

Sound

Audible vibrations perceived by the ears or a descriptor for arguments, reasoning, or principles that are based on solid reasoning or evidence.

Valid

Legally sound, officially acceptable, or able to withstand objection or challenge.

Warranted Arguments

Arguments that are justified or supported by evidence and reasoning, making them credible and persuasive.