According to the Taylor Rule

Multiple Choice

According to the Taylor rule,

A) if real GDP rises by 2 percent above potential GDP, the Fed should raise the real federal funds rate by 1 percentage point.
B) when real GDP is equal to potential GDP and inflation is equal to its target of 4 percent, the federal funds rate should be kept at 2 percent.
C) if inflation falls by 1 percentage point below its target of 2 percent, then the Fed should raise the real federal funds rate by one-half a percentage point.
D) all of these are appropriate Fed actions.