A central bank that follows the Taylor rule
A)will not react to economic disturbances until its full effects are felt
B)assumes there is no tradeoff between unemployment and inflation
C)keeps the growth rate of money supply constant
D)sets interest rates based on current economic conditions
E)will start selling government bonds as soon as interest rates start to rise

Question

Quizplus · Accepted Answer

The Taylor rule is a monetary policy guideline that suggests setting interest rates based on current economic conditions, specifically inflation and economic output. Therefore, a central bank that follows the Taylor rule would set interest rates based on the current economic situation and not wait for the full effects of economic disturbances to be felt.

A Central Bank That Follows the Taylor Rule