According to the Taylor Rule, the Fed Should

question 29

Multiple Choice

According to the Taylor rule, the Fed should:

• A)​lower the fed funds rate by 0.5% if RGDP increases 1.0% over potential GDP.
• B)​raise the fed funds rate by 0.5% if RGDP increases 1.0% over potential GDP.
• C)​raise the fed funds rate by 1.0% if RGDP increases 0.5% over potential GDP.
• D)​raise the fed funds rate by 2.0% if RGDP increases 0.5% over potential GDP.

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Definitions:

Base Rate Information

Statistical data that represents the general probability of an event or characteristic within a population.

False Consensus

The belief that one's own opinions, beliefs, or behaviors are more common in the general population than they actually are.

External Attribution

The method of assigning the reason for one's own or other people's actions to external elements or circumstances.

Illusory Correlation

The tendency to perceive a connection between variables, typically events or behaviors, where no such relationship exists.