What Is the Taylor Rule

What is the Taylor Rule?

A) The overnight loan rate is set in response to the current inflation rate and to the current estimate of the output gap.
B) The monetary base is set in response to the current inflation rate and to the current estimate of the output gap.
C) The monetary base should grow at a rate equal to the target inflation rate plus the long-term real GDP growth rate minus the medium-term velocity growth rate.
D) The money supply should grow at a rate equal to the long-run real growth rate.
E) The money supply should be regulated by setting the exchange rate equal to purchasing power parity with other countries.

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