According to the Taylor rule,which of the following will lead to a higher nominal federal funds rate?
A)an increase in inflation
B)a positive output gap
C)a positive inflation gap
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

The Taylor rule suggests that the nominal federal funds rate should increase in response to higher inflation, a positive output gap (where actual output exceeds potential output), and a positive inflation gap (where actual inflation exceeds the target inflation rate). All these factors indicate an overheating economy, which the Taylor rule addresses by recommending higher interest rates to cool down economic activity and inflation.

According to the Taylor Rule,which of the Following Will Lead