According to the Taylor rule, when real GDP is at its potential and inflation is at its target rate of 2 percent, the Fed should:
A. carefully lower the federal funds rate in an attempt to stimulate noninflationary real GDP
growth.
B. raise the federal funds rate in an attempt to eliminate the remaining inflation.
C. lower the federal funds rate to lower borrowing costs for the federal government.
D. keep the federal funds rate at 4 percent.
D. keep the federal funds rate at 4 percent.
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The flaw of the Friedman model of the business cycle is that it
A) assumes away output fluctuations. B) assumes complete wage rigidity. C) assumes unrealistic fooling of workers. D) requires procyclical wage movements and continuous labor market equilibrium.
Sales taxes are
A) assessed on the prices paid on a large set of goods and services. B) levied on purchases of a particular good or service. C) based on each individual taxpayer's income level. D) collected only by the U.S. government.