The Central Bank of a Country Follows the Taylor Rule

question 7

Multiple Choice

The central bank of a country follows the Taylor rule to set its interest rate.If the equilibrium real interest rate rises by 1 percentage point, all other variables remaining unchanged,​

• A)the central bank should raise the nominal interest rate by 1 percentage point.
• B)the central bank should lower the nominal interest rate by 1 percentage point.
• C)the central bank should raise the nominal interest rate by 0.5 percentage points.
• D)the central bank should lower the nominal interest rate by 0.5 percentage points.

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Definitions:

Violate Public Policy

To act in a manner that is contrary to the basic policies or principles that society considers important for the collective well-being.

Cancel Policy

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Refuse to Renew

The decision not to extend a contract, agreement, or policy beyond its current expiration date.

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The money received from an insurance claim, paid out by the insurance company to the policyholder or beneficiary.