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.