According to the Taylor Rule, the Fed Should Keep the Federal

question 64

Multiple Choice

According to the Taylor rule, the Fed should keep the federal fund rate at 4 percent if:

• A)real GDP is 2 percent above potential GDP and inflation is 1 percent above target inflation of 2 percent.
• B)real GDP is 1 percent above potential GDP and inflation is equal to its target of 2 percent.
• C)real GDP is 4 percent above potential GDP and inflation is 4 percent above target inflation of 2 percent.
• D)real GDP is equal to potential GDP and inflation is 1 percent above target inflation of 2 percent.
• E)real GDP is equal to potential GDP and inflation is equal to its target of 2 percent.

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Definitions:

Sampling Error

The difference between a population parameter and a sample statistic that results from selecting a sample.

Expected Value

The predicted average outcome of a random variable, computed as the weighted average of all possible values.

Stratified Random Sampling

A probability sampling method in which the population is first divided into strata and a simple random sample is then taken from each stratum.

Strata

Subsets of a population that are known to be homogeneous with respect to some characteristic, used in stratified sampling.