10 Krugman and Wells report the \"Taylor rule\" implies the target federal funds

Question

10

Krugman and Wells report the "Taylor rule" implies the target federal funds rate set by the: Treasury Department should increase as unemployment decreases and/or as inflation increases Federal Reserve should decrease as unemployment increases and/or as inflation increases Federal Reserve should increase as unemployment increases and/or as inflation increases Federal Reserve should increase as unemployment decreases and/or as inflation increases Treasury Department should increase as unemployment increases and/or as inflation increases

Explanation / Answer

YEs this is correct. The rule for policymakers is this: The Federal Reserve should raise rates when inflation is above target or when GDP growth is too high and above potential. The Fed should lower rates when inflation is below the target level or when GDP growth is too slow and below potential. When inflation is on target and GDP is growing at its potential, rates are said to be neutral.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.