Assume That the RBA Sets Monetary Policy According to the Taylor

Multiple Choice

Assume that the RBA sets monetary policy according to the Taylor rule. Suppose current Australian macroeconomic conditions are represented by the following: n < n* and u = un. Given this information, we would expect that the RBA will:

A) maintain its current stance of monetary policy.
B) implement a monetary expansion.
C) implement a monetary contraction.
D) implement a monetary contraction with a devaluation.
E) More information is needed to answer this question.