Given the Following Formula for the Taylor Rule: ?Target Federal

question 25

Multiple Choice

 Given the following formula for the Taylor rule: ?Target federal funds rate = natural rate of interest + current inflation + ½(inflation gap) +½(output gap) If output in the economy were to fall by an additional one percent below potential, the target federal funds rate would: ?

• A) Increase by 1.5%.?
• B) Decrease by 1.5%.?
• C) Remain at 2.5%.?
• D) Decrease by 0.5%.

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Definitions:

Modern Capitalism

An economic system characterized by private or corporate ownership of capital goods, investments determined by private decision, and prices, production, and the distribution of goods determined primarily by competition in a free market.

New Netherland

A 17th-century colonial province of the Dutch Republic that included parts of what are now the northeastern United States, with its capital at New Amsterdam (now New York City).

Dutch Reformed Church

A Christian denomination that originated in the Netherlands during the Protestant Reformation and established a significant presence in colonial America, especially in New York and New Jersey.