Multiple Choice
Use the following to answer questions :
Scenario: Taylor Rule
Suppose the Federal Reserve is following the Taylor rule, which takes both inflation and business cycles into account when setting the federal funds rate. Also suppose that the inflation rate in the economy is 3% and the unemployment gap is -2%.
-(Scenario: Taylor Rule) Look at the scenario Taylor Rule. The economy has:
A) an inflationary gap, since the inflation rate is high.
B) a recessionary gap, since the economy is not producing potential GDP.
C) an inflationary gap, since actual real GDP exceeds potential real GDP.
D) a recessionary gap, since potential real GDP exceeds actual real GDP.
Correct Answer:
Verified
Correct Answer:
Verified
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