Given the Following Formula for the Taylor Rule: Target Federal

question 17

Multiple Choice

Given the following formula for the Taylor rule: Target federal funds rate = 2 + 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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Definitions:

Independent Variables

In experimental research, the variables that are manipulated or changed by the researcher to determine their effect on dependent variables.

Causality

The relationship between cause and effect, where one event (the cause) leads to the outcome or consequence (the effect).

Status Variables

Variables that describe or categorize individuals based on their social or professional position.

Independent Variable

The variable in an experiment that is manipulated or changed by the researcher to observe its effects on the dependent variable.