Suppose the nominal interest rate is five percent, and the inflation rate rises from two percent to three percent

Might an increase in the nominal interest rate to 5.5 percent be consistent with the Taylor Principle? If not, what consequences might ensue?


Yes, it might be. The Taylor Principle requires that the nominal interest rate rise by more than the increase in expected inflation. If expected inflation has not changed, or has increased by less than half a percentage point, then the increase in the nominal interest rate implies an increase in the real interest rate. If expected inflation has increased by more than 0.5%, then the real interest rate has declined, which will encourage more spending that might fuel further increases in inflation.

Economics

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A. getting an education. B. investing in health care. C. gaining experience in jobs. D. All of these are true.

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a. True b. False Indicate whether the statement is true or false

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Economics