According to the Taylor Rule, the Fed Should Keep the Federal

Multiple Choice

According to the Taylor rule, the Fed should keep the federal fund rate at 4 percent if:

A) real GDP is 2 percent above potential GDP and inflation is 1 percent above target inflation of 2 percent.
B) real GDP is 1 percent above potential GDP and inflation is equal to its target of 2 percent.
C) real GDP is 4 percent above potential GDP and inflation is 4 percent above target inflation of 2 percent.
D) real GDP is equal to potential GDP and inflation is 1 percent above target inflation of 2 percent.
E) real GDP is equal to potential GDP and inflation is equal to its target of 2 percent.