The Taylor Rule Can Be Written as FF Rate =

question 25

Multiple Choice

The Taylor rule can be written as FF rate = π + 2.0 + 0.5(π - 2.0) + 0.5(GDP gap) , where FF rate is the nominal federal funds rate, π is the inflation 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:

Second Quartile

Also known as the median; it splits the data set into two halves, with 50% of the data below it and 50% above it.

Relative Standing

A measure or ranking of a value or observation within the context of a larger set of data or population.

Observation

An act of recording the occurrence or existence of a specific entity or phenomenon.

Box and Whisker Plot

A graphical representation of data that highlights the median, quartiles, and extremes of the dataset.