Given the following formula for the Taylor rule:Target federal funds rate = natural rate of interest + current inflation + 1/2(inflation gap) +1/2(output gap) If output in the economy were to fall by an additional one percent below potential, the target federal funds rate would:
A. Increase by 1.5%.
B. Remain at 2.5%.
C. Decrease by 0.5%.
D. Decrease by 1.5%.
Answer: C
You might also like to view...
Compared to setting a single price, if a firm can price discriminate it
A) makes a larger economic profit. B) makes a lower economic profit. C) makes zero economic profit. D) has no change in its economic profit from when it set a single price. E) might increase, decrease, or not change its economic profit depending on whether as a single-price monopoly its marginal revenue curve was above, below, or the same as its demand curve.
If government debt is an external debt, the debt burden cannot be passed on to future generations
Indicate whether the statement is true or false
What is meant by scientific method?
What will be an ideal response?
Which one of the following could cause an inflationary gap?
A. Net exports are decreasing. B. Price levels are too low. C. Government spending is too high. D. Unemployment occurs.