If Real GDP Is 2% Below Potential GDP, and the Inflation

question 118

Multiple Choice

If real GDP is 2% below potential GDP, and the inflation rate is 1%, then according to the Taylor rule, the Fed should make the real federal funds rate:

• A) Decrease by 1.5%
• B) Decrease by 3%
• C) Increase by 3%
• D) Decrease by 1%

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Definitions:

Autoworkers

Individuals who are employed in the automotive industry, typically involved in the manufacture, assembly, or maintenance of vehicles.

Income Distribution

The way in which total income is divided among the owners of the various factors of production.

Pastry Chefs

Specialists in the preparation and decoration of pastries, desserts, and various baked goods.

Healthy Living

A lifestyle that includes balanced nutrition, regular physical activity, and avoidance of unhealthy behaviors such as smoking.