According to the Taylor Rule, If Inflation Rises by 1

question 46

Multiple Choice

According to the Taylor rule, if inflation rises by 1 percent above its target of 2 percent, the Fed should:

• A) Lower the real Federal funds rate by 0.5 percent
• B) Raise the real Federal funds rate by 0.5 percent
• C) Lower the money supply by 5 percent
• D) Raise the money supply by 5 percent

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