According to the Taylor Rule, If There Is No Unemployment

question 250

Multiple Choice

According to the Taylor rule, if there is no unemployment gap and

• A) if inflation rises to 4 percent, the Fed should raise its targeted interest rate to 7 percent.
• B) when real GDP is equal to potential GDP and inflation is equal to its target of 4 percent, the Fed's targeted interest 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:

Economies of Scale

The advantages in cost that companies receive owing to their operational magnitude, with the expense per produced unit generally diminishing as the scale of operations broadens.

Natural Monopoly

A market condition where the cost of production is minimized by having a single firm produce the product, due to high fixed or startup costs.

Demand Schedules

A table that shows the quantity demanded of a good or service at different price levels.