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

question 103

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) ?Every one percent decrease in the rate of inflation will: ?

• A) raise the target federal funds rate by 1.5%.?
• B) lower the target federal funds rate by 0.5%.?
• C) lower the target federal funds rate by 1.5%.?
• D) raise the target federal funds rate by 0.5%.

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Positive Economics

An area of economics that focuses on factual and cause-and-effect relationships, avoiding any value judgments.

Labor Economics

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