Using the Taylor Rule, If the Current Inflation Rate Equals

question 163

Multiple Choice

Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP is greater than potential GDP, then the overnight lending target rate ________ the sum of the current inflation rate plus the real equilibrium overnight interest rate.

• A)will be greater than
• B)will be less than
• C)will be the same as
• D)may be greater than or less than

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Definitions:

FICA Tax

Federal Insurance Contributions Act tax used to finance federal programs for old-age and disability benefits (social security) and health insurance for the aged (Medicare).

Payroll Tax

Taxes imposed on employers or employees, and are usually calculated as a percentage of the salaries that employers pay their staff.

Interest-Bearing Note

A debt security that pays interest to the holder, typically at a fixed rate, until maturity.

Deducts

Refers to the act of subtracting an amount from a total, often used in accounting and finance to calculate net values.