How might using the Taylor rule improve the Fed's monetary ...

[schs14]

How might using the Taylor rule improve the Fed's monetary policy?
 
  What will be an ideal response?

Question 2

Refer to Figure 7-5. The efficient price of medical services is
 
  A) 40. B) 55. C) 65. D) > 65.

[elyse44]

Answer to Question 1

The Taylor rules is a formula that sets the federal funds rate according to the inflation rate and the output gap. This rule has worked well in computer simulations when it comes to avoiding excessive inflation or recessions. Given this track record, it might improve the Fed's monetary policy and make the Fed better able to avoid high inflation and recessions. It also has the advantage of inflation targeting insofar as it removes uncertainty about what will be the Fed's policy.

Answer to Question 2

B