1. According to the Taylor Rule, if the output gap rises by 1% and inflation rises by 2%, then the federal funds rate should rise by

A. 2.0%.

B. 2.5%.

C. 3.0%.

D. 3.5%.

2. According to the Taylor Rule, if inflation rises by 2%, then the targeted interest rate should rise by more than 2%.

True

False

3. According to the Taylor Rule, if the output gap rises by 2% and the inflation gap rises by 1%, then the real federal funds rate should rise by

A. 1.5%.

B. 2.0%.

C. 2.5%.

D. 3.0%.

4. According to the Taylor Rule, if the output gap falls by 2% and the inflation gap rises by 1%, then the real federal funds rate should be

A. lowered by 1.0%.

B. lowered by 0.5%.

C. left unchanged.

D. raised by 1.0%.

5. According to the Taylor Rule, if the output gap rises by 3% and inflation falls by 1%, then the federal funds rate should

A. fall by 2%.

B. fall by 1%.

C. remain unchanged.

D. rise by 1%.