If the simple Taylor rule models the "ideal" federal funds rate, the ________ displayed a monetary policy that was too loose.
A) 1960s
B) 1970s
C) 1980s
D) 1990s
E) 2000s

Question

Quizplus · Accepted Answer

The Taylor rule suggests that the ideal federal funds rate is determined by inflation and output gaps. During the 1970s, there were high levels of inflation due to the oil crisis and loose monetary policies, which led to an expanding money supply and rising prices. This resulted in the need for a higher federal funds rate, indicating that monetary policy was too loose during this time period.

If the Simple Taylor Rule Models the "Ideal" Federal Funds