Which One of the Following Statements Is FALSE

question 358

Multiple Choice

Which one of the following statements is FALSE?

• A)The Taylor rule sets the federal funds rate on the basis of both inflation rate and output gap, whereas inflation targeting is based on a desired inflation rate.
• B)The Taylor rule sets the federal funds rate on the basis of past inflation rates, whereas inflation targeting is based on a forecast of the inflation rate.
• C)The Taylor rule can be more flexible, whereas inflation targeting provides more transparency and accountability.
• D)The Taylor rule sets the federal funds rate on the basis of only past inflation rates, whereas inflation targeting is based on a target interest rate and business cycles.

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Definitions:

CPI (Consumer Price Index)

An indicator that assesses the weighted mean of the prices for a selection of consumer products and services, including food, transportation, and healthcare, aimed at calculating the living expenses.

Real Price

The price of a good or service adjusted for inflation, reflecting its purchasing power over time.

Real Return

Simple (or nominal) return on an asset, less the rate of inflation.

Nominal Return

The rate of return on an investment without adjusting for inflation, representing the raw financial gain or loss.