Define the Taylor rule.
What will be an ideal response?
The Taylor rule is a rule of thumb used by the Federal Reserve to target the Federal funds rate. The Taylor rule assumes a target inflation rate of 2% and has three parts. First, if real GDP rises by 1% above potential GDP, the Fed should raise the Federal funds rate by one-half of a percentage point (the opposite is true if GDP is 1% below potential GDP). Second, if inflation rises by 1% above the 2% target, the Fed should raise the Federal funds rate by one-half of a percentage point (the opposite is true if inflation lowers below the target by 1%). Lastly, when real GDP equals potential GDP and inflation meets the target rate, the Federal funds rate should remain at about 4%—implying a real interest rate of 2%.
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Firms disclose financial statements in ________ and in ________
A) weekly filings with the SEC; monthly reports to the Fed B) monthly reports to shareholders; 5-year balance statements to the board of directors C) periodic filings to the federal government; annual reports to shareholders D) daily filings to the federal government; daily reports to shareholders
Bonds with ________ tend to have higher interest rates than bonds with ________
A) high liquidity; low liquidity B) high default risk; low default risk C) shorter maturity; longer maturity D) low tax burdens on their interest; high tax burdens on their interest