Question

"If output rose above potential while inflation increased beyond its target, the Taylor Rule would suggest"...

"If output rose above potential while inflation increased beyond its target, the Taylor Rule would suggest"

Increasing the nominal interest rate by the amount of the inflation gap.

Increasing the nominal interest rate by the amount of the output gap.

Increasing the nominal interest rate by more than the amount of the inflation gap.

Decreasing the nominal interest rate by the amount of the inflation gap.

Decreasing the nominal interest rate by more than the amount of the inflation gap.
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Answer #2

The Taylor rule provide how the central banks can alter the interest rates to control the economic condition in the country. According to the Taylor rule the interest rate in the economy should be raised when the when the inflation is high, like wise the interest rate has to be reduced when the inflation is low. So here the inflation is high so the interest rate has to increased more than the inflation rate.

Ans: Increasing the nominal interest rate by more than the amount of inflationary gap.

answered by: anonymous
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