How might using the Taylor rule improve the Fed's monetary policy?
What will be an ideal response?
The Taylor rules is a formula that sets the federal funds rate according to the inflation rate and the output gap. This rule has worked well in computer simulations when it comes to avoiding excessive inflation or recessions. Given this track record, it might improve the Fed's monetary policy and make the Fed better able to avoid high inflation and recessions. It also has the advantage of inflation targeting insofar as it removes uncertainty about what will be the Fed's policy.
You might also like to view...
If the economy is in long run equilibrium and then aggregate demand increases, in the long run the increase in aggregate demand means that the
A) price level will be higher but real GDP will be unaffected. B) real GDP will be larger but the price level will be unaffected. C) the price level will be higher and real GDP will be larger. D) neither the price level nor real GDP will be unaffected.
The ________ is the price of one good ________ the price of another good
A) relative price; times B) relative price; divided by C) budget; times D) budget; divided by