Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP is greater than potential GDP, then the overnight lending target rate ________ the sum of the current inflation rate plus the real equilibrium overnight interest rate.
A)will be greater than
B)will be less than
C)will be the same as
D)may be greater than or less than

Question

Quizplus · Accepted Answer

The Taylor rule suggests that if real GDP is greater than potential GDP (indicating an overheating economy), the central bank should raise the interest rate above the sum of the current inflation rate plus the real equilibrium overnight interest rate to cool down the economy.

Using the Taylor Rule, If the Current Inflation Rate Equals