If the Taylor Principle Is Not Followed and Nominal Interest

question 18

Multiple Choice

If the Taylor Principle is not followed and nominal interest rates are increased by less than the increase in the inflation rate,then real interest rates will ________ and monetary policy will be too ________.

• A)rise;tight
• B)rise;loose
• C)fall;tight
• D)fall;loose

---

Definitions:

Principle of Comity

A legal doctrine that suggests courts within one jurisdiction will give effect to the laws and judicial decisions of another jurisdiction, based on mutual respect rather than obligation.

Agency Relationships

A legal relationship in which one party (the agent) acts on behalf of another party (the principal) in a business transaction.

Act of State Doctrine

A principle in international law that a nation is sovereign within its own borders and its domestic actions may not be questioned in the courts of another nation.

Arbitration Clause

A provision in a contract that requires disputes between the parties to be resolved through arbitration rather than through litigation in court.