SOLVED

1) According to the Taylor rule, which of the following will lead to a higher nominal federal funds rate? A) an increase in inflation B) a positive output gap C) a positive inflation gap D) all of the above E) none of the above 2) According to the Taylor rule, which of the following will lead to a higher nominal federal funds rate? A) a decrease in inflation B) a negative output gap C) a positive inflation gap D) all of the above E) none of the above 3) According to the Taylor rule, which of the following will lead to the largest increase in the nominal federal funds rate? A) a two percentage point increase in the target inflation rate B) a one percentage point decrease in the target inflation rate C) a one percentage point increase in output D) a two percentage point decrease in output E) a one percentage point increase in the inflation rate 4) If the inflation rate target is 2%, the current inflation rate is also 2%, and the output gap is zero, then according to the Taylor rule, the nominal federal funds rate should be ________ percent. A) zero B) two C) four D) three E) none of the above 5) If the inflation rate target is 2%, the current inflation rate is 3%, and the output gap is 2%, then according to the Taylor rule, the nominal federal funds rate should be ________ percent. A) 4.5 B) 7 C) 6.5 D) 5.5 E) none of the above 6) If the inflation rate target is 2%, the current inflation rate is 1%, and the output gap is minus 2%, then according to the Taylor rule, the nominal federal funds rate should be ________ percent. A) zero B) two C) four D) three E) none of the above 7) In 2008 and 2009, the federal funds rate was well below the rate suggested by the Taylor rule. A likely explanation for the discrepancy is that ________. A) the Fed’s dual mandate prevents a close reliance on the Taylor rule. B) policy makers decided that the Taylor rule underestimates the risk of inflation C) the Taylor rule is not intended to guide policy in response to aggregate supply shocks D) all of the above E) none of the above 8) Is the Taylor rule of greater use to activist or to nonactivist policy makers? 9) Is the Taylor rule compatible with a hierarchical mandate?