According to the Taylor rule, if the current inflation rate is 2.8%, output is 2% below the full-employment level, and the central bank’s announced inflation target is 2%, at what level should the central bank set the nominal interest rate?
A. 0.028
B. 0.042
C. 0.052
D. 0.058
E. 0.068
According to the Taylor rule, if the central bank’s announced inflation target is 2%, the current inflation rate is 2%, and output is 1% below the full-employment level, at what level should the central bank set the nominal interest rate?
A. 0.01
B. 0.02
C. 0.035
D. 0.04
E. 0.055
The Taylor rule allows for strict inflation targeting as long as
A. the output coefficient is zero
B. the inflation coefficient is zero
C. the output coefficient is negative
D. the inflation coefficient is negative
E. none of the above
In the Taylor rule, if the output coefficient β is set to zero, then the central bank
A. is mostly concerned with maintaining full employment
B. always sets interest rates 2% above its inflation target
C. will aggressively lower interest rates as soon as output declines
D. engages in strict inflation targeting
E. none of the above