Which of the Following Is NOT a Basis for the Taylor-Rule

question 24

Multiple Choice

Which of the following is NOT a basis for the Taylor-rule guideline for how the Federal Reserve should set its target value for the federal funds rate?

• A) an estimated long-run real interest rate
• B) the current deviation of the actual inflation rate from the Fed's inflation objective
• C) the present deviation of the actual unemployment rate from the Fed's unemployment objective
• D) the gap between actual real GDP and a measure of potential real GDP

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Definitions:

Marginal Cost

The additional financial burden of producing one more unit of a product or service.

Break-even Price

The price level at which a business does not make a profit or a loss.

Long Run

In economics, the period in which all inputs can be adjusted, with no fixed costs, allowing for full adjustment to changes in the market.

Industry Supply Curve

A graphical representation showing the total quantity of a good that producers in an industry are willing to supply at various prices.