Respuesta :
There is obviously an increase in between the present inflation rate and the desired inflation rate. The Taylor Rule's formula links two variables to the federal funds rate, which is the Fed's primary tool for setting interest rates: the gap between desired and apparent growth in the real gross domestic product (GDP).
The Taylor Rule (also known as Taylor's rule or Taylor principle), which is a correlation between inflation and economic growth rates, is used to determine the benchmark interest rate set by the Federal Reserve. The rule was initially put forth by Stanford economist John Taylor as a loose guideline for monetary policy, but Taylor has since advocated a fixed-rule policy based on the equation, a position taken up by Republicans looking to curtail the Federal Reserve's ability to make policy decisions.
The Taylor Rule establishes a connection between inflation and economic growth and the policy rate of a central bank. It makes the assumption that the federal funds rate is 2% above the inflation rate at equilibrium. Based on deviations from the central bank's targets for inflation and real GDP growth, the Taylor Rule modifies the equilibrium rate. Under the Taylor Rule, policy rate increases when inflation and growth targets are exceeded while decreases when they are not. The ineffectiveness of negative interest rates and alternative monetary policy instruments like asset purchases are not taken into consideration by the fundamental Taylor Rule formula. The Taylor Rule formula makes inflation the single most significant factor in determining interest rates, and the Federal Reserve is charged with the dual responsibility of fostering maximum employment and price stability.
Learn more about 'Taylor Rule' here:
https://brainly.com/question/19920758
#SPJ4
Complete question:
Is the current inflation rate lower or higher than the target inflation rate? Given your answer concerning the current state of inflation, when calculating the appropriate federal fund rate, what is the Taylor Rule stating should be done in regard to the calculation of the appropriate federal fund rate?
